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CIHM/ICMH 

Microfiche 

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tha  usual  mathod  of  filming,  ara  chackaid  balow. 


D 


D 


D 


Colourad  covers/ 
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r~~|   Covars  damaged/ 


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ReliA  evec  d'autres  documents 


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Tight  binding  mey  cause  shedows  or  distortion 
eiong  interior  mergin/ 

La  reliure  serr6e  peut  ceuser  de  I'ombre  ou  de  la 
distortion  la  long  de  le  marge  int^rieure 

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1 
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une  image  reproduite,  ou  qui  peuvent  exiger  une 
modification  dans  la  mithoda  normala  de  f iimage 
aont  indiqute  d-dassous. 


D 


Coloured  pages/ 
Pages  de  couleur 


I — I  Pages  demaged/ 


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Pagae  endommag4as 

Peges  restored  and/oi 

Pages  restaufAas  et/ou  pellicuMes 

Pages  diecoloured,  atainad  or  foxai 
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|~n  Peges  restored  and/or  laminated/ 

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Fyl  Showthrough/ 

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r~|  Includes  supplementary  materiel/ 

I — I  Only  edition  available/ 


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Pages  wholly  or  partially  obscured  by  errata 
slips,  tissuae,  etc.,  have  lieen  refilmed  to 
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obecurciee  par  un  fauillet  d'arreta,  une  peiure, 
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obtenir  la  meilleura  image  possible. 


This  item  is  filmed  at  the  reduction  retio  checked  below/ 

Ce  document  est  f  ilm4  su  taux  de  rMuction  indiquA  ci-dessous. 

10X  14X  18X  22X 


26X 


30X 


J 

3 

12X 


16X 


2QX 


24X 


2tX 


32X 


TIm  copy  filmed  h«r«  has  b««n  r«produc«d  thanks 
to  ths  gansroslty  off: 

Library  of  the  Public 
Archives  of  Canada 


L'axamplaira  fllmA  f ut  raproduit  grica  k  la 
0*n*rosit4  da: 

La  bibliothdqua  das  Archives 
publiques  du  Canada 


The  images  appearing  here  ere  the  best  quellty 
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filming  contract  speclficetions. 


Originel  copies  in  printed  paper  covers  ere  filmed 
beginning  with  the  front  cover  end  ending  on 
the  lest  page  vvlth  a  printed  or  illuatrated  Impres- 
sion, or  the  back  cover  when  eppropriate.  All 
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first  pege  with  e  printed  or  illuetrated  impres- 
sion, end  ending  on  the  last  page  with  a  printed 
or  illustrated  impression. 


The  lest  recorded  frame  on  each  microfiche 
shell  contein  the  symbol  — ^  (meening  "CON- 
TINUED"), or  the  symbol  Y  (meening  "END"), 
whichever  epplies. 


Les  images  suivantes  ont  MA  reproduites  avec  le 
plus  grsnd  soin,  compte  tenu  de  ia  condition  at 
de  le  nettetA  de  i'exempiaire  film*,  et  en 
cor>formit*  evec  les  conditions  du  contrat  de 
filmege. 

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papier  est  imprimte  sent  filmte  en  commandant 
per  le  premier  plat  et  en  terminant  soit  par  la 
darnlAre  page  qui  comporte  une  empreinte 
d'impression  ou  d'iiiustration,  soit  par  ie  second 
piet,  aalon  le  ces.  Tous  les  eutres  exemplsires 
originaux  sent  filmte  en  commanpant  par  la 
premiere  pege  qui  comporte  une  empreinte 
d'impression  ou  d'iiiustration  et  en  terminant  par 
ia  dernlAre  page  qui  comporte  une  telle 
empreinte. 

Un  des  symboles  suivants  apparaftra  sur  la 
dernlAre  imege  de  cheque  microfiche,  seion  ie 
ces:  ie  symbols  — ►  signifie  "A  SUIVRE",  le 
symbols  ▼  signifie  "FIN". 


Maps,  plates,  cherts,  etc.,  may  be  filmed  at 
different  reduction  retlos.  Those  too  lerge  to  be 
entirely  included  in  one  exposure  are  filmed 
b«s>r<nlng  in  the  upper  left  hand  corner,  left  to 
right  end  top  to  bottom,  as  many  fremes  es 
required.  The  following  diagrams  illustrate  the 
method: 


Les  cartes,  planches,  tableaux,  etc.,  peuvent  Atre 
fiimte  A  des  taux  de  reduction  diff Arents. 
Lorsque  le  document  est  trop  grand  pour  Atre 
reproduit  en  un  seui  ciichA,  11  est  film*  6  partir 
de  I'engie  supArieur  geuche,  de  gauche  A  droite, 
et  de  haut  en  bas,  en  prenant  le  nombre 
d'imeges  nAcesssire.  Les  diagrammes  suivants 
iiiustrent  ia  mAthode. 


1 

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6 

CURRENCY   OR   MONEY; 


ITS 


NATURE  AND  USES, 


AND  THE  EFFECTS  OF  THE 


CIRCULATION  OF  BANK-NOTES  FOR  CURRENCY. 


BY 


A   MERCHANT    OF    BOSTON. 


BOSTON: 

LITTLE,    BROWN   AND    COMPANY. 

1855. 


Entered  according  to  Act  of  Congress  in  the  year  1855,  by 

LITTLE,  BROWN  AND  COMPANY, 

In  Ihe  Clerk's  Office  of  the  District  Court  of  the  District  of  Massachusetts. 


CAMBRIDGE: 
ALLEli   AND   VAnMIIAH,    PRINTERS. 


PREFACE 


A  CLEAR  and  complete  comprehension  of  the  nature 
and  uses  of  currency  or  money  is  of  the  greatest  impor- 
tance to  persons  in  every  class  of  life ;  yet  there  are  few 
subjects  with  regard  to  which  the  general  knowledge  is  so 
inaccurate  and  confused.  Many  of  those  who  are  engaged 
in  trading  and  money  transactions  as  their  regular  business, 
consider  it  in  vain  for  them  to  attempt  to  understand  it. 
But  the  difficulties,  that  give  it  this  appearance  of  being 
abstruse  and  complicated,  arise  from  the  false  and  unsound 
opinions  and  practices  prevailing  with  regard  to  it,  many 
of  which  are  encouraged  by  those  whose  interests  are 
promoted  by  them. 

The  subject  of  the  currency  has  also  been  unfortunately 
connected  with  party  politics,  and  this  circumstance  has 
been  fatal  to  a  calm  and  intelligent  examination  of  it. 
But  changes  in  the  condition  of  the  country  have  rendered 
unnecessary  what  has  been  by  some  deemed,  in  former 
years,  to  be  essential  or  expedient  in  financial  legislation; 
and  the  great  political  parties,  considering  it  now  to  be 
only  a  business  question,  the  subject  can  be  examined  and 


discussed  without  fear  of  awakening  the  slumbering  preju- 
dices of  politicians,  though  there  may  still  be  considerable 
differences  of  opinion  with  regard  to  it. 

When  the  resources  of  the  country  were  exhausted  by 
the  protracted  and  expensive  war  of  the  Revolution,  it  was 
impossible  to  possess  a  currency  of  real  money;  and  great 
credit  is  due  to  the  genius  that  established,  at  such  a  time, 
the  system  of  paper  currency  that  obtained  universal  credit. 
Nor  should  those  services  and  exertions  be  undervalued, 
which  restored  and  preserved  at  par,  as  compared  with 
specie,  the  paper  currency  that  had  depreciated  in  most 
parts  of  the  country  during  the  war  of  1812.  But  the 
condition  of  the  country  has  greatly  changed  since  those 
periods.  The  United  States,  without  any  national  debt  of 
importance,  and  with  its  immense  exports,  is  now  better  able 
to  possess  a  sound  currency  of  real  money  than  any  other 
nation.  The  precious  metals  exist  within  the  country  in 
abundance  for  that  purpose.  All  that  is  necessary  to 
retain  them  for  use  as  money  is  to  prohibit  the  circula- 
tion of  the  notes  issued  by  the  banks.  The  coin  of  the 
country  would  then  circulate,  as  currency,  to  benefit  the 
industry  and  property  of  the  community,  instead  of  being 
forced  abroad,  as  it  is  now,  to  the  great  injury  of  the  labor 
and  wealth  of  the  whole  country. 

As  a  merchant  seeking  to  promote  his  own  interest,  or, 
as  a  director  of  a  bank  seeking  to  promote  the  interest  of 
the  stockholders,  one  would  naturally  consider  banks  mostly 
with  reference  to  those  objects,  without  looking  beyond  the 
laws  which  authorize  the  establishment  of  them,  and  the 
character  of  their  business.  But  as  a  member  of  the  legis- 
lature considering  the  interests  of  the  public,  I  have  beeni 


impressed  with  the  evil  effects  and  the  injury  to  the  com- 
munity arising  from  the  excessive  use  of  bank-notes  for 
currency.  Believing  that,  so  far  as  the  public  was  con- 
cerned, no  benefits  are  derived  from  their  use,  I  have  advo- 
cated the  principle  of  restricting  the  power  of  the  banks  to 
issue  notes  for  circulation.  They  should  be  required  to 
deposit  security  for  the  notes  they  issue,  —  and  the  circula- 
tion of  all  bank-notes  of  very  small  denominations  should 
be  restrained. 

The  personal  attacks  heretofore  made  upon  me  in  the 
discussion  of  the  subject  have  not  diminished  my  confi- 
dence in  the  correctness  of  my  opinions.  The  eagerness 
with  which  my  views  were  combatted  suggested  to  me  that 
they  may  be  even  more  important  than  I  had  supposed, 
and  thus  I  have  been  induced  to  examine  the  subject  with 
more  care.  The  results  of  that  investigation  will  be  found 
in  the  following  pages.  It  has  been  my  aim  to  apply, 
in  the'  plainest  manner,  the  history  of  the  past  and  the 
experience  of  the  present  to  the  subject. 

I  desire  to  disclaim  the  production  of  any  new  or 
original  doctrines.  Those  which  I  advocate  may  be  found 
in  the  writings  of  philosophic  economists  and  in  the  public 
legislative  reports  and  debates  of  distinguished  statesmen 
and  practical  merchants  and  men  of  business.  They  are 
most  especially  to  be  found  in  the  actual  experience  and  con- 
versations of  those  most  engaged  in  dealings  in  exchanges 
and  currency  and  credit  and  coin  and  bank-notes,  —  men 
who  usually  have  neither  time  nor  disposition  to  publish 
their  experiences,  —  men  indeed  whose  profit  and  fortune 
are  more  concerned  in  quiet  industry  and  in  concealing 
their  wisdom   on  banking   and   currency   than   in   effecting 


6 


any  legislative  action  which  might  lessen  speculation  and 
protect  the  community. 

What  I  have  written  has  been  intended  not  for  the 
skilful  and  initiated  alone,  but  to  be  easily  comprehended. 
Some  doctrines  and  illustrations  have  been  repeated  when 
they  have  seemed  to  bear  directly  upon  the  different  kinds 
of  currency,  or  of  the  same  currency  under  different  cir- 
cumstances. Some  passages  may  seem  too  plain  and  ele- 
mentary, being  merely  axioms  of  financial  practice.  But 
avoiding  any  undue  expansion  of  a  subject,  upon  which 
useful  and  learned  volumes  have  been  and  may  be  written, 
I  have  only  sought  to  be  readily  understood,  and  in  the 
briefest  manner,  precisely  and  unmistakably,  to  develop  my 
own  opinions.  These  opinions  have  not  been  hastily  formed. 
I  believe  them  to  be  founded  in  truth.  Whatever  errors  of 
argument  may  be  found,  the  conclusions  are  surely  on  the 
safe  side.  They  advocate  the  increased  stability  of  the 
currency.  They  uphold  both  the  employment  of  the  labor 
and  the  diffusion  of  the  wealth  of  the  country,  the  two 
conditions  of  our  true  prosperity. 

S.  H. 

Boston,  March,  1855. 


CURRENCY  OR  MONEY. 


Wkd  is  Currency  or  Money. 

In  treating  the  subject  of  currency  or  money,  it 
may  be  well  first  to  consider  of  what  the  present 
currency  or  money  of  civilized  countries  actually 
consists. 

Gold  and  silver  have  been  recognized  for  many  ages, 
by  the  general  consent  of  mankind,  as  the  standard 
of  value ;  and  it  is  more  important  now  to  investigate 
their  uses  and  effects  as  money,  than  to  advocate  or 
deny  their  fitness  for  that  purpose.  They  are  the  only 
universally  recognized  standard,  by  which  to  measure 
the  value  of  all  other  articles;  and  they  constitute 
the  only  real  money  of  commercial  nations. 

Real  money  measures  the  value  of  all  other  objects, 
]»ecause  it  is  in  itself  comparatively  of  an  unvarying 
value.  The  gold  and  silver,  of  which  it  consists,  are 
obtained  with  much  difficulty  and  labor,  and  the 
annual  supply  of  them,  in  a  series  of  years,  has 
usually  been  only  about  sufficient  to  balance  their 
waste  and  their  uses  for  other  purposes  than  money. 
The  quantity  of  the  precious  metals  throughout  the 


world  has  not  often  been  increased  or  diminiwhed  to 
any  great  extent,  and,  as  the  purposes  for  which 
they  are  used  do  not  suddenly  vary,  their  value  has 
been  more  uniform  and  regular  than  the  value  of 
other  articles.  The  price  of  these  metals  is  not  alto- 
gether exempted  from  variation ;  but  the  changes  to 
which  it  is  liable  are  geneiully  slow  and  gradual. 

Gold  and  silver  can  easily  be  divided  and  again 
reunited  without  being  diminished  in  value.  Each  one 
or  any  number  of  the  smallest  pieces  always  possess 
the  same  relative  value,  according  to  weight,  as  the 
same  quantity  possesses  when  united  in  one  mass. 
Moreover,  these  metals  have  an  intrinsic  value,  inde- 
pendent of  their  use  for  money  ;  because  they  are 
less  subject  to  decay  or  rust  than  other  metals,  and 
because  of  their  utility  in  the  arts  and  sciences,  and 
for  purposes  of  luxury  and  ornament.  These  circum- 
stances have  rendered  them  a  more  suitable  material 
by  which  to  measure  the  values  of  all  objects,  of 
which  the  supply  and  demand  is  subject  to  greater 
changes. 

While  money  continues  invariable  and  unchanging 
in  quantity  and  value,  it  continues  to  be  a  true 
measure  of  the  value  of  all  other  things ;  and  the 
rise  and  fall  in  the  price  of  other  commodities  is  the 
consequence  of  a  variation  in  their  supply,  or  in  the 
demand  for  them,  and  consequently  in  their  value. 
If  an  article  of  trade  is  increased  in  quantity,  or 
become.,  more  plentiful,  more  of  it  is  given  than 
before  for  the  same  quantity  of  money.  On  the 
other  hand,  if  the  quantity  of  an  article  is  decreased, 
if  it  becomes  less  plentiful,  less  of  it  is  given  than 
before  for    the    same   quantity  of   money ;    because, 


9 


while  the  articles  of  trade  vary  in  quantity  and 
value,  the  money  remains  unchanged  in  these  respects. 
Ifj  however,  by  any  means,  the  quantity  of  money 
circulating  in  any  country  be  suddenly  increased  or 
diminished,  that  of  itself  will  cause  a  rise  or  fall  in  the 
prices  of  other  commodities.  If  the  quantity  of  money 
is  increased,  a  rise  will  occur  in  the  prices  of  all  other 
articles.  If  a  decrease  in  the  quantity  of  money 
occurs,  all  other  articles  will  fall  In  price.  To  the 
public  this  will  appear  to  be  a  general  cheapness  or 
dearness  of  all  commodities,  for  which  they  cannot 
account.  Suppose,  for  instance,  that  by  the  discovery 
of  very  productive  mines,  the  quantity  of  the  pre- 
cious metals  in  any  country  is  suddenly  increased. 
As  they  are  obtained  with  less  labor  and  trouble 
than  before,  and  have  become  more  plentiful,  those 
who  possess  them  will  more  easily  and  more  readily 
p.art  with  them  in  exchange  for  other  articles.  In 
this  ^yay,  a  general  advance  in  prices  is  commenced, 
which  will  extend  to  all  articles.  It  is,  however, 
only  a  greater  cheapness  of  the  money,  and  not  a 
greater  dearness  of  the  commodities.  The  articles  meas- 
ured by  it  seem  to  cost  more.  That  is,  one  receives  for 
the  same  weight  of  gold  and  silver,  a  smaller  quantity 
of  any  article  than  before.  If  the  quantity  of  money 
should  be  suddenly  lessened  from  any  cause,  the 
reverse  of  this  would  occur.  Money  being  less  plen- 
tiful, and  requiring  more  labor  and  trouble  to  obtain 
it,  becomes  of  greater  value.  Those  who  possess  it 
are  less  ready  to  part  wdtli  it  in  exchange  for  other 
articles,  and  require  larger  quantities  of  other  articles 
for  a  given  quantity  of  the  precious  metals.  This  is 
the   beginning  of  a  general   decline  of  prices.      But 

2 


10 


this  decline,  like  the  advance  of  prices,  is  only  an 
apparent  change  in  the  value  of  articles  of  sale.  It 
is,  in  fact,  the  greater  scarcity  and  dearness  of  money. 
The  things  that  are  measured  by  it  seem  to  cost  less; 
that  is,  one  receives  a  larger  quantity  of  any  article 
for  the  same  weight  of  gold  and  silver  than  they  did 
before. 

If  the  rise  of  the  price  of  any  article,  wheat  for 
example,  is  a  consequence  of  its  increased  scarcity 
as  compared  with  the  demand  for  it,  the  quantity 
that  can  be  purchased  for  a  given  sum  of  money  is 
diminished,  whilst  the  quantity  of  other  articles  that 
can  be  purchased  for  that  sum  of  money  remains  the 
same.  The  sum  of  money  being  the  same,  it  is  evi- 
dent that  wheat  has  risen  in  value  as  compared  with 
other  articles.  But,  if  a  similar  rise  in  the  prices  of 
all  other  articles  has  occurred  at  the  same  time,  and 
the  quantities  of  them  that  can  be  purchased  for  that 
sum  of  money  have  diminished  in  the  same  proportion, 
it  is  evident  that  the  rise  in  the  price  of  wheat  is 
not  in  consequence  of  its  increased  scarcity ;  and  that 
there  is  no  change  in  its  value  as  compared  with 
other  articles  except  money.  The  change  is  in  the 
price  and  not  in  the  value  of  the  wheat.  It  is  a 
decline  in  the  value  of  money. 

The  average  for  a  series  of  years  of  the  price  of 
wheat  has  been  considered  by  financial  writers  as  the 
best  criterion  of  the  value  of  the  currency  of  a  coun- 
try, because  the  cultivation  of  wheat  is  spread  over  a 
large  surface,  and  the  quantity  of  it  produced  is  of  such 
magnitude,  and  the  use  of  it  so  general,  that  its  value 
cannot  be  materially  affected,  except  by  the  seasons. 
For  no  combination  can  affect  the  value  of  all  com- 


11 


modities  at  the  same  time ;  nor  can  the  value  of  so 
abundant  an  article  as  wheat  be  controlled  for  a  long 
series  of  years.  Its  value  may  fluctuate  from  season 
to  season,  depending  on  the  condition  and  extent  of 
the  crops ;  but  taking  the  average  of  a  series  of 
years,  the  quantity  and  value,  as  compared  with  the 
demand  for  it,  must  be  about  the  same,  unless  there 
has  been  some  great  improvement  in  the  mode  of 
production ;  which  certainly  has  not  yet  been  the  case 
with  regard  to  wheat  and  most  other  articles  of  food. 
These  are  and  have  been,  for  the  most  part,  the  result 
of  simple  manual  labor.  Therefore,  any  long  con- 
tinued change  in  the  price  of  wheat  for  which  the 
seasons  would  not  account,  has  always  been  ascribed 
to  an  alteration  in  the  value  of  money. 

Great  and  sudden  fluctuations  in  the  quantity  of 
the  precious  metals  in  the  world  have  seldom  occurred. 
Whenever  changes  have  taken  place,  they  have  been 
gradual,  extending  over  a  period  of  many  years.  And 
it  has  been  difficult,  at  the  time,  to  see  or  to  believe 
that  it  was  a  change  in  the  value  of  money,  the 
standard  of  value,  and  not  a  change  in  the  value 
of  the  commodities,  which  it  buys.  Changes  in  the 
value  of  articles  of  sale  and  commerce,  arising  from 
variations  of  supply  and  demand,  are  constantly  occur- 
ring, and  every  one  becomes  familiar  with  them.  But 
an  alteration  in  the  standard  of  value,  that  is  to  say, 
in  the  supply  of  the  precious  metals  and  the  value 
of  real  money,  is  an  unusual  occurrence,  and  the 
consequences  of  such  a  change  have  been  unexpected 
and  not  understood  at  the  time.  The  effect  of  a 
great  and  sudden  alteration  in  the  quantity  and  value 
of  money,  may  be  seen  by  comparing  the  prices  of 


12 


some  commodities  before  the  discovery  of  the  rich 
mines  in  America  with  the  prices  which  those  com- 
modities bore  subsequently ;  and  it  will  afford  full 
and  complete  evidence  of  the  truth  of  the  foregoing 
statements;  because,  although  there  are  constant  fluc- 
tuations in  the  prices  of  particular  articles  from  time 
to  time  without  any  change  in  the  standard  of  value, 
—  money,  —  yet  there  cannot  be  a  great  and  per- 
manent change  in  the  prices  of  all  articles  in  general 
use  without  an  alteration  in  the  value  of  the  standard 
^y  which  the  price  is  measured. 

After  the  conquests  of  Mexico  and  Peru,  the  large 
quantities  of  gold  and  silver  poured  into  Europe 
caused  a  continually  increasing  circulation  of  money. 
This  produced  a  great  rise  in  the  prices  of  all  com- 
modities. In  England,  these  enhanced  prices  were 
believed  by  many  to  have  proceeded  from  monopo- 
lies granted  by  the  government,  and  from  forestalling. 
Admitting  to  the  fullest  extent,  the  evils  and  injuries 
of  the  system  of  court  favoritism  then  prevailing,  still 
it  is  now  well  understood  that  the  true  and  efficient 
cause  of  the  high  prices  was  Ihe  lessening  of  the  value 
of  gold  and  silver,  in  consequence  of  the  quantities 
produced  from  the  rich  mines  of  Mexico  and  South 
America.  The  other  causes  which  at  the  time  justly 
excited  so  much  popular  clamor  were,  in  comparison, 
but  trifling  in  their  effects. 

Freedom  of  commerce  soon  equalizes  the  value  of 
the  precious  metals  in  all  countries  that  trade  with 
each  other.  If  gold  and  silver  are  brought  in  imusual 
quantities  into  one  country,  they  quickly  spread  them- 
selves through  the  others.  The  process  by  which  this 
is  effected  h  very  plain.     The   merchant  is  always 


13 


seeking  to  send  his  merchandise  to  that  country 
where  he  can  obtain  for  it  the  most  money  ;  in 
other  words,  the  largest  quantity  of  the  precious 
metals.  The  precious  metals  he  sends  to  those  coun- 
tries where  the  largesc  quantities  of  such  merchan- 
dise as  he  wants  can  be  obtained  for  the  smallest 
quantity  of  the  precious  metals.  Spain,  for  example, 
was  the  nation  to  which  came  the  first  great  influx  of 
gold  and  silver  from  America.  That  influx,  by  greatly 
adding  to  the  amount  of  the  money  in  circulation  in 
Spain,  raised  at  once  the  price  of  all  commodities  in 
that  country  above  the  level  of  the  prices  in  other  parts 
of  Europe.  These  high  prices  encouraged  the  mer- 
chants of  foreign  countries  to  send  goods  into  Spain 
for  sale,  and  to  take  away  the  gold  and  silver  which 
was  received  for  them;  and  the  merchants  of  Spain 
found  ?j,n  immediate  profit  in  sending  gold  and  silver 
abroad,  where  larger  quantities  of  commodities  could 
be  obtained  for  them  than  in  Spain.  Thus  the  treas- 
ure which  had  been  poured  into  Spain  from  America 
quickly  spread  to  other  parts  of  Europe;  and  thus, 
whenever  the  amount  of  money  in  circulation  in  any 
country  is  greatly  increased,  the  enhancement  of 
prices  produced  by  it  is  certain  to  cause  an  increase 
of  the  import  of  goods  from  abroad,  which  will  con- 
tinue until  the  circulation  of  that  country  and  of  the 
prices  of  merchandise  are  equalized  and  at  par  with 
the  prices  in  surrounding  nations. 

When,  in  the  commerce  between  covmtries,  each 
takes  from  the  other  about  the  same  amount  in  com- 
modities, those  persons  who  wish  to  pay  money  abroad 
buy  the  bills  of  those  who  have  to  receive  money 
abroad,  and,  by  this  exchange,  the  payments  in  each 


14 


country  are  met  and  settled  without  the  necessity  of 
exporting  the  precious  metals  from  either  side.  The 
"course  of  exchange"  is  said  to  be  against  the  coun- 
try which  has  imported  more  than  it  has  exported, 
because  from  that  country  there  is  a  balance  due  to 
the  other,  for  the  payment  of  which  no  bills  can  be 
had,  and  which  must,  therefore,  be  liquidated  by  the 
transmission  of  coin  or  bullion.  This  must  have  been 
the  case  with  Spain  during  the  period  referred  to. 
The  "  course  of  exchange "  with  other  countries  must 
have  been  against  Spain,  in  consequence  of  the  large 
importations  of  foreign  products,  until  the  value  and 
amount  of  the  money  in  circulation  in  Spain,  and 
the  prices  of  commodities  approached  nearly  to,  or 
were  at  par  with,  the  money  and  the  prices  of  the 
surrounding  countries.  While  there  was  an  excess 
of  the  precious  metals  in  Spain,  it  may  have  been  no 
disadvantage  to  have  had  the  "course  of  exchange" 
against  her.  It  may  generally  be  admitted,  that  any 
countries  producing  gold  and  silver  can,  to  a  certain 
extent,  afford  to  ha\e  the  course  of  exchange  against 
them,  and  may  export  the  excess  of  bullion  beyond 
what  may  be  required  for  use  at  home. 

The  effect  of  the  vast  and  rapid  addition  to  the 
currency  or  money  in  Europe  in  the  sixteenth  cen- 
tury is  shown  by  comparing  the  prices  of  many 
articles  of  trade,  at  times  preceding  that  event,  with 
the  prices  at  a  subsequent  period.  Carefully  prepared 
tables  of  the  prices  of  wheat  for  successive  periods, 
between  the  years  1423  and  1700,  show  an  increase 
of  price  of  fivefold,  which  has  continued,  with  only 
occasional  variations,  to  the  present  time ;  and  for 
which  no  other  cause   has  ever  been   assigned   than 


15 


the  increased  quantity  and  cheapness  of  the  precious 
metals.  It  appears  by  those  tables,  that  tlie  average 
price  of  wheat  from  1423  to  1560  was  about  ten 
shillings  sterling  per  quarter  of  eight  bushels,  and 
from  1561  to  1700  it  was  nearly  fifty  shillings. 

The  value  of  wheat  from  1561  to  1700,  while  the 
average  price  was  nearly- fifty  shillings,  was  not  greater 
than  its  value  in  the  previous  years,  between  1423 
and  1560,  when  the  average  price  was  about  ten 
shillings,  if  there  was  the  same  degree  of  change  in 
the  prices  of  other  articles.  If  the  farmer  could 
get  no  more  of  the  articles  which  he  needed,  and 
which  he  obtained  in  exchange  for  the  wheat  that 
he  sold,  the  price  in  money,  which  is  only  the  meas- 
ure of  values,  had  alone  changed.  If  fifty  shillings, 
between  the  years  1561  and  1700,  would  buy  no 
more  of  the  articles  which  the  farmer  had  to  pur- 
chase than  ten  shillings  would  buy  previously,  the 
money  must  have  fallen  or  depreciated  in  value  to 
that  extent.  One  dollar  a  day  would  therefore  have 
been  no  better  wages  to  a  laboring  man  in  the  year 
1700,  than  twenty  cents  a  day  had  been  a  hundred 
and  forty  years  before,  because  it  would  not  purchase 
for  him  any  more  of  the  necessary  supplies  which 
he  required  for  the  maintenance  of  his  family. 

The  following  curious  document  in  Doubleday's 
Financial  History  of  England,  extracted  from  "Drake's 
Eboracum,"  is  a  table  of  prices  at  York  in  the  years 
1393  and  1733.  It  shows  that  the  same  effects  had 
been  produced  on  the  prices  of  other  commodities  as 
on  wheat.  This  must  have  been  occasioned  chiefly 
by  the  same  cause,  although  it  is  possible,  as  that 
author  remarks,   that   difterent  rates  of   duties  may 


16 


"■<■! 


ill 


have  affected  the  prices  of  some  of  the  articles  of 
import  in  the  table.  But  there  can  be  no  doubt 
that  these  lists  of  prices  present  substantially  a  cor- 
rect comparison  of  the  prices  of  articles  in  general 
use  at  these  two  periods.  The  prices  of  1393  were 
assessed  by  the  judges  of  the  assize,  aided  by  the 
bench,  "to  prevent  combinations  to  enhance  prices" 
■when  Richard  II.  and  his  court  were  at  York. 


Prices  2>roclamed  at  York  in  1393. 

£   s.  d. 

Strong  beer  per  gallon  0    0  li 

A  milder  sort  "  0    0  1 

Finest  claret  wino  "  0    0  8 

All  common  white  wines     "  0    0  6 

Carcass  of  finest  beef      ...  1    0  8 

Next  best        0  14  0 

Scotch  Kyloe  ox  carcass       .    .  0  12  0 

"         '"      cow    "  .    .  0  10  0 

Carcass  of  mutton,  best   ...  0    1  8 

"  "        worse  fed    .  U    1  6 

Carcass  of  fine  veal    ....  0    2  6 

Another  sort  of    "       ....  0    1  6 

A  lamb 008 

Afat  pork  hog 0    3  4 

A  smaller  pig 0    3  0 

A  capon 0    0  4 

A  hen 0    0  li 

A  fat  goose 0    0  4 

One  dozen  pigeons       ....  0    0  3 
Woodcock  and  teal,  each     ..001^ 


Prices  at  York,  1733. 

£,    8.  d. 

Strong  beer  per  gallon  ....  0    2    0 
Mild  ale               "         ....010 

Best  claret           "         ....  0  17    0 

White  port          "         ....  0    8    0 

Choice  carcass  of  beef     ...  9  10    0 

Next  best         "                 ...  8    0    0 

Scotch  Kyloe       4    4    0 

Cow         "           3    0    0 

Carcass  of  mutton,  best    ...  1  10    0 

"             "        worse  fed    .  1    0    0 

Carcass  of  fine  veal      ....  1    6    0 

Another  sort         "        ....  0  15    0 

A  lamb 0  12    0 

A  fat  pork  hog 2  10    0 

A  smaller  pig       2    0    0 

A  capon 0    19 

A  hen 009 

A  fat  goose 0    2    0 

One  dozen  pigeons 0    13 

Woodcock  and  teal,  each  ...  0    0    9 


At  Chester,  in  England,  the  records  of  the  market 
prices  are  extant  so  far  back  as  to  the  year  1378. 
It  appears  from  them,  that  in  the  year  1379,  the 
price  of  a  bushel  of  wheat  was  M. ;  a  gallon  of  white 
wine,  Aid. ;  a  fat  goose,  2d.  "In  1437,  "wheat  sold 
for  seven  pence  a  bushel,  being  a  very  dear  rate 
according  to  that  time;  so  that  the  poore  in  Chester 
and  elsewhere  made  their  bread  of  peasen,  vetches, 
and  fearn  roots." 


17 


Since  the  year  1700,  and  nntil  the  recent  discov- 
eries of  gold  in  California  and  Australia,  the  quantity 
of  the  precious  metals  in  the  world  had  noi;  very 
materially  varied,  though  there  was  some  fluctua- 
tion in  the  relative  value  of  gold  and  silver.  The 
average  price  of  wheat,  taking  long  periods  of  time, 
has  continued  about  the  same.  From  year  to  year, 
it  has  varied  with  the  character  of  the  seasons,  and 
in  some  countries,  with  the  condition  of  the  currency. 
It  is  well  known  that  the  effects  in  California  and 
Australia  have  been  similar  to  those  produced  in 
Spain  after  the  conquests  of  Mexico  and  Peru;  that 
is  to  say,  to  raise  the  price  of  commodities  of  all 
kinds  above  the  level  of  the  prices  of  other  coun- 
tries. Merchants  have  found  an  immediate  profit  in 
sending  merchandise  to  California  and  Australia,  to 
exchange  for  gold.  Their  prospects  of  profit  may 
not  always  have  been  realized,  in  consequence  of  the 
effect  of  the  abundance  of  gold  on  prices  having 
been  often  counteracted  by  the  very  excessive  sup- 
plies of  many  commodities.  The  activity  of  modern 
commerce  diffuses  rapidly  the  newly  discovered  gold, 
and  spreads  it  over  the  w^hole  of  the  civilized  world ; 
but  sufficient  time  has  not  yet  elapsed  for  results 
from  it  of  a  character  so  marked  as  to  be  at  once 
recognized  and  appreciated. 


Effects  of  Paper  Money. 

Thus  far  we  have  given  our  attention  to  the  sub- 
ject of  currency  in  the  fonn  of  metallic  money.  Let 
us  now  consider  the  new  element   of  paper  money 


3 


WW 


18 


-:l 


,  i 

;   I 


which  has  been  introduced  into  the  currencies  of  some 
countries,  though  all  its  effects  are  not  yet  so  clearly 
and  pi;ecisely  understood  as  to  cause  but  one  opinion 
with  regard  to  them.  This  new  element  renders  the 
operations  of  money  more  uncertain  and  more  com- 
plicated. It  increases  the  difficulty  of  obtaining  exact 
data  upon  which  to  base  opinions  that  can  be  posi- 
tively verified  within  a  short  period  of  time.  The 
use  of  paper  money  for  currency  has  been  so  profit- 
able to  many  of  those  who  have  furnished  it,  that 
they  are  not  generally  disposed  to  encourage  any 
discussion  concerning  its  uses  and  effects  j  but,  as  it 
exercises  an  important  influence  upon  the  currencies 
of  some  of  the  most  commercial  countries  in  the 
world,  it  is  necessary  to  know  something  of  its  char- 
acter. .       ,  . 

From  perceiving  certain  conveniences  in  commerce 
from  the  use  of  notes  of  hand  and  bills  of  exchange, 
variously  contrived  forms  of  promises  and  orders  for 
the  payment  of  money  were  probably  suggested. 
These  may  have  gradually  led  to  the  issue  of  prom- 
issory notes  for  small  sums,  payable  to  the  bearer  on 
demand,  and  transferable  from  hand  to  hand,  to  be 
used  as  a  substitute  for  money.  They  are  called 
paper  money.  They  are  not  money.  They  are,  in 
fact,  only  promises  to  pay  money.  It  would  be  as 
corroct  to  say  that  a  contract  to  deliver  flour  was  in 
reality  flour,  as  to  say  that  such  promises  to  pay 
money  were  really  money.  Paper  money  possesses 
no  intrinsic  value;  it  has  only  a  derivative  or  sec- 
ondary value,  arising  from  the  belief,  founded  upon 
the  good  credit  of  those  who  issue  it,  that  it  will 
command,  at  any  time,  the  amount  of  the  promise  in 


19 


real  money,  or  that  it  will  be  received  by  others  in 
satisfaction  for  debts,  or  for  the  purchase  of  any 
articles,  as  real  money.  •■ 

When  an  amomit  of  paper  money  is  added  to  the 
circulation  of  a  country,  except  so  far  as  an  amount 
of  coin  is  withdrawn  from  circulation  and  held  in 
reserve  by  the  banks  that  issue  it,  it  decreases  the 
value  of  the  money  in  circulation,  for  the  same  rea- 
sons and  to  the  same  extent  as  the  addition  of  the 
same  amount  of  gold  and  silver  would  have  dimin- 
ished it.  The  gold,  silver,  and  paper  all  depreciate 
together.  And  this  is  shown  by  the  rise  that  imme- 
diately takes  place  in  the  prices  of  all  articles  of 
sale  and  commerce.  It  is  this  effect  on  prices  that 
renders  paper  money  so  popular  among  persons 
engaged  in  trading  pursuits.  They  are  satisfied  with 
this  effect  of  it,  which  enables  them  to  sell  their 
merchandise  at  enhanced  prices,  and  to  gain  appar- 
ently large  and  unexpected  profits,  without  heeding 
the  difficulty  of  realizing  and  investing  those  profits 
and  rendering  them  secure. 

Whether  the  paper  money  thus  added  to  the  cir- 
culation be  inconvertible,  or  whether  it  be  redeemable 
on  demand  in  specie,  so  long  as  it  is  in  circulation 
and  in  actual  use,  its  effect  of  diminishing  the  value 
of  the  money  in  circulation  would  be  the  same.  A 
rise  in  the  prices  of  all  articles  would  take  place, 
and  this  general  advance  of  prices  would  cause 
increased  importations  of  foreign  merchandise,  and 
a  demand  for  gold  and  silver  to  export  in  payment 
for  them.  As  more  paper  money  would  be  issued  to 
supply  the  place  in  the  circulation  of  the  amount  of 
gold  and  silver  thus  withdrawn  from  it   to   export, 


20 


the  volume  of  the  currency  would  not  be  lessened. 
The  export  would  continue  without  aflfecting  the 
amount  of  currency  in  circulation,  until  the  con- 
tinued advance  of  prices  and  consequent  increase  of 
importations  had  rendered  the  demand  for  specie  so 
intense  that  there  would  be  the  greatest  difficulty 
in  meeting  it. 

If  the  paper  money  were  not  redeemable  in  specie, 
the  demand  for  gold  and  silver  to  export  would 
increase  their  value  as  compared  with  the  paper 
money,  and  they  would  be  sold  at  some  premium. 
In  other  words,  the  paper  money  would  be  depre- 
ciated as  compared  with  specie.  But,  if  the  paper 
were  redeemable  on  demand  in  specie,  the  gold  and 
silver  could  be  obtained  for  it  witliout  the  pay- 
ment of  any  premium ;  as  any  one  possessing  the 
paper  money  could  exchange  it  for  specie  by  demand- 
ing it.  It  is  often  said,  that  a  currency  consisting 
of  paper  money  redeemable  in  specie  on  demand 
cannot  be  depreciated,  because  of  the  demand  for 
specie    it   would    at    once    produce.^      As    it   is    the 


^  The  following  account  of  a  recent  affair  shows  liow  far,  in  some  parts 
of  the  United  States,  public  opinion  allows  convertible  paper  money  to  be 
converted :  — 

A  Banker  Hung  ix  Eifigy  —  Excitemkxt  at  Ykusailles. — 
Tlie  branch  of  the  Commercial  Bank  of  Kentucky,  located  at  Versailles, 
Woodford  county,  has  been,  for  several  months  past,  greatly  embarrassed 
by  the  constant  and  heavy  drafts  made  by  Mr.  Barclay,  a  Lexington 
banker,  upon  its  vaults.  It  was  a  custom  with  that  gentleman  to  collect 
all  th«  notes  payable  at  the  Versailles  branch,  and  present  them  at  the 
counter  for  redemption.  The  drain  upon  the  bullion  of  the  bank  required 
very  skilful  financiering,  on  the  part  of  its  officers,  to  prevent  a  collapse, 
and,  as  a  consequencie,  it  was  impossible  for  the  institution  to  afford  jner- 
chants,  farmers,  and  tradesmen  the  desired  discounts  and  other  monetary 
facilities.      Thinking  that  this  draw  f/aine    had    been  played  sufficiently. 


21 


depreciation  wliicli  cmtses  the  demand  for  the  specie 
that  is  to  be  the  remedy,  some  degree  of  depre- 
ciation must  first  occur.  But  the  remedy  of  a 
demand  for  specie  will  not  operate,  to  any  great 
extent,  until  the  depreciation  has  continued  long 
enough  to  produce  an  advance  of  prices  and  increased 
importations.  It  will  not  create  the  demand  for  spe- 
cie to  any  great  extent,  until  it  has  affected  the 
importations.  And,  in  fact,  it  is  usujUly  by  the 
increase  of  imports  and  the  rise  of  exchange,  and 
the  demand  for  specie  to  export,  that  a  depreciation 
of  the  currency  renders  itself  perceptible.  If  the 
paper  were  not  convertible  into  specie  on  demand, 
the  extent  of  the  depreciation  would  be  indicated  in 
some  degree  by  the  premium  on  the  specie.  But  it 
is  not  always  a  certain  index  of  the  extent  of  it. 
The  amount  of  coin  Avithdrawn  from  circulation  to 
export  is  at  first  supplied  by  an  addition  of  paper 
money.  The  depreciation  of  the  currency  may  there- 
fore continue  for  a  long  time  before  it  is  affected  by 
the  demand  for  the  precious  metals  to  export. 

The  depreciation  of  paper  money,  as  compared  with 
specie,  is  one  of  the  consequences  of  inconvertible 
paper  money.  This  depreciation  is  often  confounded 
with  the  depreciation  of  the  local  currency  as  com- 
pared with  the  currencies  of  other  countries.  The 
misfortune  is,  that  these  two  evils  of  depreciation, 
both  of  local  currency  and  of  foreign  exchange,  may, 


the  citizens  of  Versailles  met  together  on  Saturday,  pas^sed  resolutions 
denouncing  the  conduct  of  IJarclay,  and  then  proieeded  to  hang  him  in 
effigy.  The  indignant  people  also  promised  to  make  sunmiary  work  with 
Barclay,  or  his  clerk,  if  either  ever  again  molested  the  vault  of  their 
bank.  —  Louisville  Courier^  of  Tuesday^  January  30,  1855.  •  • 


22 


and  frequently  do,  occur  at  the  Hame  time.  In  the 
Hixteenth  century,  the  currencies  of  Spain  and  of  the 
other  parts  of  Europe  consisted  wholly  of  specie.  Yet 
the  currency  of  Spain  became  greatly  depreciated 
in  comparison  with  that  of  the  other  countries,  by 
reason  of  her  supplies  of  the  precious  metals  from 
America.  So,  at  the  present  day,  when  paper  money 
is  redeemable  on  demand  in  specie  alike  in  the 
United  States,  England,  and  France,  no  one  can 
doubt  that  the  abundant  paper  money  in  the  United 
States,  with  its  notes  even  so  small  as  one  dollar, 
is  more  depreciated  than  the  currencies  of  England 
and  France,  where  the  amounts  of  bank-notes  in  cir- 
culation are  restricted,  and  where  no  bank-notes  are 
allowed  of  smaller  values  than  twenty-five  and  twenty 
dollars  (£5  and  100  francs). 

The  greatest  mischief  of  a  depreciation  of  a  cur- 
rency of  paper  money,  whether  it  is  redeemable  on 
demand  in  specie  or  not,  is,  that  it  is  constantly 
varying  in  value  by  changes  in  the  amount  of  such 
money  in  circulation.  This  operates  with  great 
injustice  and  great  injury  to  the  community,  though 
individuals  are  often  made  rich  by  it.  Great  injus- 
tice occurred  towards  the  people  in  Russia  when 
the  paper  money  circulating  as  currency  there  was 
allowed  to  depreciate  to  nearly  one  quarter  of  the 
value  at  which  it  was  first  issued.  It  then  repre- 
sented the  silver  rouble,  equal  to  nearly  eighty  cents 
of  our  money.  Not  being  convertible  on  demand  in 
specie,  it  gradually  diminished  in  value,  as  increased 
quantities  of  it  were  issued,  until  about  four  paper 
roubles  were  required  in  exchange  for  one  of  silver. 
It  would  have  been  equally  unjust  to  have  restored 


28 


these  paper  roubles  to  their  original  value  after  the 
public  had  become  accustomed  to  their  depreciation, 
and  had  based  all  their  transactions  lor  years  upon 
that  depreciated  value.  Being  under  the  control  of 
the  government,  after  the  general  peace  of  Europe  in 
1815,  any  further  depreciation  was  prudently  guarded 
against  by  regulating  the  amount  in  circulation,  and 
adapting  it  to  a  relative  value  with  the  silver  coin, 
which  was  annually  declared,  and  which,  though 
varying  slightly  in  difterent  years,  was  usually  about 
three  and  six  tenths  of  paper  to  one  of  silver.  It 
continued  thus,  for  mony  years,  to  supply  the  com- 
munity with  a  currency  of  nearly  uniform  value.  It 
has  since  been  entirely  withdrawn  from  circulation, 
and  new  paper,  convertible  into  specie  on  demand, 
was  i&sued  in  the  place  of  it,  of  the  same  value  as 
the  silver  coin  of  the  country,  at  the  rate  of  one  for 
three  and  a  half  of  the  old  paper  roubles.  The 
money  of  accounts  was  gradually  and  easily  changed. 
The  people  had  become  accustomed  to  the  difference 
of  value  between  the  old  paper  and  the  silver  rouble. 
They  were  not  required  to  believe  that  there  was 
no  difl'erence,  as  was  unwisely  and  ineffectually  at- 
tempted in  Great  Britain  during  the  suspension  of 
specie  payments.  There,  it  was  made  illegal  to  esti- 
mate in  payments  any  difference  between  the  coin 
and  the  paper  money  in  circulation,  although  light 
guineas,  which,  being  below  the  standard  weight,  were 
not  a  legal  tender,  often  sold  for  more  than  thirty 
shillings  of  paper  money.  t        ,..      .  ,    ^       ,., 

The  paper  money  of  our  own  country  during  the 
Revolution,  from  1775  to  1781,  known  as  "the  con- 
tinental  money,"   affords   an   instance   of  a  different 


It :; 


24 


character.  The  first  issue  of  it  was  made  by  Congress 
in  August,  1775.  It  continued  for  some  time  without 
depreciation,  and  until  the  amount  exceeded  nine 
millions  of  dollars.  In  April,  1778,  the  amount  in 
circulation  was  thirty  millions  of  dollars.  The  con- 
dition of  the  war  was  then  most  discouraging,  and  no 
limit  could  be  perceived  to  the  amount  that  might 
be  issued.  The  value  became  depreciated  to  six 
dollars  for  one  of  silver.  While  the  issue  of  nine 
millions  had  beon  at  par,  and  would  have  remained 
so,  if  no  additions  had  been  made,  the  thirty  millions 
in  circulation  came  to  be  worth  only  five  millions  in 
hard  money. 

The  capture  of  Burgoyne's  army,  in  October,  1777, 
and  the  treaty  with  France,  opened  a  more  favorable 
prospect,  and  in  June,  1778,  though  the  issues  of  the 
continental  money  had  been  suddenly  enlarged  to 
more  than  forty-five  millions  of  dollars,  the  deprecia- 
tion was  only  as  four  of  paper  to  one  of  silver.  Soon 
after,  the  probabilities  of  peace  again  seemed  as  dis- 
tant as  ever.  The  value  of  the  continental  money 
then  diminished  constantly  and  rapidly,  never  to  rise 
again. 


%  : ;! 


In  MaiTli,  1779,  the  silver  dollar  was  worth  30  paper  dollars. 
In  January,  1780,  «  "  «  40       "  " 

In  January,  1781,  "  «  "  80       "  " 


'!     -M 


:l. 


and  in  May,  1781,  it  ceased  to  circulate  as  money, 
though  the  notes  were  afterwards  purchased  for  spec- 
ulation at  rates  varying  from  500  to  1,000  paper 
dollars  for  one  of  silver. 

The  total  issues  of  the  continental  notes,  three  hun- 


25 


dred  and  sixty  millions  of  dollars  in  all,  probably 
at  no  time  exceeded  the  value  of  fifteen  millions  of 
silver  money.  This  paper  money  effected  a  good  and 
a  great  work  at  a  most  critical  time^  and  the  loss  by 
its  total  depreciation  was  not  much  greater,  or  less 
justly  distributed,  than  it  would  have  been  by  any 
scheme  of  taxation,  or  by  any  other  method  possible 
in  those  difficult  and  revolutionary  times.  No  attempt 
to  redeem  this  paper  money  has  ever  been  made  by 
the  United  States.  In  view  of  the  impossibility  of 
indemnifying  the  really  meritorious  creditors  of  the 
country,  further  than  was  afterwards  done  by  the  pen- 
sion laws,  by  the  allowance  of  claims,  grants  of  mili- 
tary bounty  lands,  and  appointments  to  government 
offices;  and  considering,  moreover,  that  the  great  rise 
in  value,  by  the  redemption  of  this  paper  money 
in  coin,  would  have  been  as  unjust  to  debtors  as  the 
great  depreciation  of  it  had  before  been  to  creditors, 
perhaps  the  opinion  may  be  entertained  that  the  gov- 
ernment rightly  abandoned  the  continental  money  in 
its  fallen  condition. 

A  depreciation  of  currency  may  take  place,  even 
when  the  precious  metals  are  alone  used,  occasioned 
by  a  great  addition  to  the  quantity  in  circulation.  li 
occurred  in  Spain  after  the  conquests  of  Mexico  and 
Peru,  to  which  reference  has  been  made.  Such  depre- 
ciations, however,  have  seldom  happened,  because  of  the 
infrequency  of  great  additions  to  the  precious  metals. 
When  such  an  increase  of  the  quantity  of  gold  and 
silver  has  occurred,  the  effects  have  been  gradual  and 
spread  over  a  period  of  many  years.  But  wherever 
paper  money  is  used  for  currency,  the  depreciations 
produced  by  additions  of  it  to  the  circulation  occur 

4 


■i! 


,j;M 


«   1 


-'  % 


26 


liif 


often.  They  are  sure  to  take  place  again  and  again, 
almost  as  soon  as  they  are  remedied,  and  are  rapid  and 
violent  in  their  consequences,  causing  at  frequent  inter- 
vals much  alarm,  bankruptcy,  and  distress. 

With  a  mixed  currency,  consisting  chiefly  of  bank 
paper  redeemable  on  demand  in  specie,  whenever  by 
reason  of  the  general  advance  in  prices,  and  the  con- 
sequent increase  of  imports,  the  demand  for  specie  has 
become  so  urgent  that  it  is  difficult  to  meet  it,  the  banks 
that  have  issued  the  paper  money  become  alarmed 
for  their  safety,  or  for  their  ability  to  continue  to  pay 
specie.  Then  commences  the  rented?/  for  the  deprecia- 
tion of  such  a  currency.  The  export  of  specie  did  not 
produce  the  remedy  so  long  as  the  volume  of  the  cur- 
rency was  not  diminished  by  it.  But  when  the  demand 
for  specie  has  become  so  intense,  or  the  quantity  of  it 
so  much  diminished,  as  to  alarm  the  banks,  the  remedy 
commences.  It  is  a  sure,  though  a  sharp  remedy.  It  is 
brought  into  operation  by  stopping  all  discounts  at  the 
banks,  and  requiring  the  payment  of  all  previous  loans 
as  they  fall  due.  In  England,  this  is  usually  preceded 
or  accompanied  by  sales  of  securities  belonging  to  the 
banks.  Traders  and  merchants  are  forced  at  such  times 
to  make  great  efforts  to  obtain  money  to  pay  back 
their  loans  to  the  banks.  To  do  this,  they  must  sell 
property  at  low  prices,  or  borrow  money  at  exorbi- 
tant rates.  A  general  decline  of  prices  is  thus  pro- 
duced, which  soon  renders  the  import  of  many  articles 
of  merchandise  from  abroad  unprofitable.  Many  kinds 
of  merchandise  become  so  cheap  that  it  is  advanta- 
geous to  export  them  in  order  to  bring  back  specie. 
The  payment  into  tlie  banks  of  previous  loans,  while 
the  banks  refrain  from  making  any  new  lo.ans,  —  and 


27 


the  exchange  of  the  paper  money  at  the  banks  for 
specie,  —  and  the  sums  withdrawn  from  circulation  by 
the  sales  of  securities  belonging  to  the  bank;?,  —  soon 
reduce  the  amount  of  the  paper  money  in  circulation. 
Thus  the  currency  is  restored  to  a  sounder  condition 
by  approaching  more  nearly  to  a  specie  basis. 

This  is  the  only  process  by  which  to  remedy  the  de- 
preciation of  a  mixed  currency  consisting  partly  of 
paper  money  redeemable  on  demand  in  specie.  It  is  a 
process  which  invigorates  the  currency  at  the  expense 
of  the  industry  and  the  enterprise  of  the  country. 

"  But  these  alternations  of  bank  expansions  and  nominal  prosperity, 
followed  by  bank  contractions,  disappointments,  and,  perhaps,  failures, 
are  very  much  to  be  deprecated.  The  banks,  to  be  sure,  have  no  dif- 
ficulty in  these  cases  ;  if  well  managed,  the  whole  pressure  is  thrown 
on  the  mercantile  community."  —  Hon.  Nathan  Appleton. 


There  is  always  money  enough  during  these  contrac- 
tions of  the  currency  to  enable  all  those  to  pay  their 
debts  who  have  sufficient  property.  But  the  value  of 
their  property  must  be  estimated  at  a  new  and  reduced 
scale  of  prices.  Money  can  be  obtained  either  by  the 
sale  of  property,  or  by  borrowing  at  a  high  rate  of 
interest.  Money  may  cost  one  per  cent,  a  month,  or  it 
mav  be  worth  double  that  rate.  Not  that  there  is  more 
money  at  these  high  rates  than  at  the  lawful  rate  of 
interest.  The  only  difference  is,  that  at  the  high  rates, 
it  can  be  borrowed,  while  at  lower  rates,  the  posses- 
sor may  prefer  to  make  some  other  use  of  it.  The 
question  to  be  considered  by  the  merchant  Or  trader 
who  has  money  to  pay  at  such  a  time,  is,  whether  to 
sell  his  merchandise  at  the  reduced  prices,  or  to  borrow 
money  at  the  high  rates,  and  continue  to  hold  his 


28 


i^    I 


merchandise,  with  the  hope  of  selling  it  afterwards  at 
prices  so  much  higher  than  the  present  reduced  price 
that  the  difference  will  more  than  pay  the  high  rates  for 
the  borrowed  money.  The  prices  of  merchandise  and 
of  property  of  all  kinds  must  be  accommodated  to  the 
new  condition  of  the  currency,  which  may  be  sufficient 
to  conduct  the  business  of  the  community  at  the 
reduced  scale  of  prices,  when  it  would  not  be  sufficient 
if  prices  were  maintained  at  former  rates.  These  dif- 
ferences in  prices,  produced  by  contractions  of  the 
currency,  often  render  bankrupt  many  of  those  who 
are  so  unfortunate  as  to  owe  at  such  times  large 
amounts  of  money. 

The  wealth  or  capital  of  a  country  is  made  up  of  all 
the  various  kinds  of  property  that  exist  in  a  country, 
including  all  those  commodities  which  are  consumed  by 
use  and  annually  reproduced,  such  as  the  articles  of 
food  and  clothing,  as  well  as  the  objects  of  a  more 
permanent  character,  such  as  the  cultivated  lands,  dwell- 
ing-houses, warehouses,  and  barns,  the  buildings  and 
machinery  of  manufactories,  tools  for  agricultural  and 
mechanical  purposes.  All  of  these  are  not  immediately 
consumed  by  use,  but  continue  to  perform  the  service 
which  they  render  to  the  community  over  and  over 
again,  year  after  year.  The  money  or  currency  of  a 
country,  wdien  it  consists  of  the  precious  metals,  is 
another  of  the  items  of  the  wealth  or  capital  of  a  coun- 
try belonging  to  the  class  of  permanent  property, 
which  is  not  consumed  by  use ;  but,  being  once  in  the 
possession  of  a  country,  it  remains,  always  ready  for 
use  over  and  over  again.  As  the  warehouses  and  barns 
remain,  and  year  after  year  perform  the  important 
service   of  protection  and  storage   for  many  of  the 


29 


articles  of  property,  so  the  coined  money  of  the  country 
continues,  year  after  year,  to  perform  the  important 
service  of  measuring  the  values  of  all  other  articles  in 
the  daily  transactions  of  trade  and  commerce. 

It  has  been  stated  by  some  writers  on  finance  and 
currency,  that  the  aggregate  amount  of  capital  invested 
in  the  warehouses  and  barns  of  a  civilized  community 
is  equal  to  the  whole  amount  of  the  money  required  to 
carry  on  the  commerce  and  trade  of  that  country ;  and 
that  the  warehouses  and  barns  could  as  well  be  dis- 
pensed with,  and  the  articles  which  are  usually  stored 
in  them,  kept  in  open  fields  and  protected  from  the 
weather  by  temporary  and  cheap  coverings,  as  the 
coined  money  could  be  dispensed  with,  and  paper 
money  used  as  a  substitute  for  it.  The  inconvenience 
and  loss  and  injury  to  the  commodities,  which  require 
to  be  stored,  would  often,  in  a  single  year  of  rinfavor- 
able  weather,  be  equal  to  the  whole  cost  of  rabstantial 
warehouses  and  barns.  And  so  with  the  money  of  the 
country ;  the  inconvenience  and  injury  and  losses  occa- 
sioned by  the  use  of  paper  money,  may  not  always 
be  so  apparent,  but,  often  in  a  single  year,  they  exceed 
the  whole  amount  of  coined  money  that  would  supply 
a  substantial  and  permanent  currency  for  the  country. 

The  amount  of  property  returned  for  taxation  in  the 
State  of  Massachusetts  is  about  six  hundred  dollars  a 
head  for  the  population  of  the  Commonwealth.  The 
amount  of  coined  money  required  to  perform  the  busi- 
ness of  an  active  commercial  community,  has  been 
estimated  on  the  average  at  about  ten  dollars  a  head  for 
the  population.  If  this  is  correct,  less  than  two  per 
cent,  of  the  amount  of  the  taxable  property  of  this 
State  is  required  in  coined  money  for  currency  to  per- 


4;; 


30 


form  all  the  business  of  the  community.  No  one  can 
doubt  that  the  depreciation  of  the  value  of  property 
and  the  losses  produced  b}*-  a  single  instance  of  the  vio- 
lent fluctuations  of  the  currency,  which  so  often  occur 
in  a  country  where  paper  money  is  used,  is  far  more 
than  two  per  cent,  of  the  taxable  property  of  that 
community. 


ii'^ 


I 


Sketch  of  the  History  of  the  Modern   Currency  of  Great 

Britain. 

An  examination  of  some  portions  of  the  financial  his- 
tory of  Great  Britain,  and  of  the  history  of  paper 
money  there,  may  assist  us  in  forming  a  correct  estimate 
of  the  utility,  as  well  as  of  the  value  and  of  the  effects, 
of  paper  money.  In  that  country,  they  have  already 
gone  through  with  the  experience  of  paper  money  on 
the  large  scale.  The  results  of  it  have  been  well 
known  and  recorded.  Their  bank  statistics  and  tables 
of  prices  have  been,  from  time  to  time,  collected  and 
published,  both  by  public  commissions  and  by  private 
individuals.  And  the  great  concentration  of  their 
moneyed  affairs  in  the  Bank  of  England,  presents  a 
more  marked  and  intelligible  account  of  their  progress 
than  is  to  be  found  in  the  financial  history  of  any 
other  nation.  i 

The  first  charter  of  the  Bank  of  England  was  granted 
on  the  27th  July,  1694,  in  fulfilment  of  a  promise  of 
the  government  to  secure  "  certain  recompenses  and 
advantages  to  such  persons  as  shall  voluntarily  raise 
£1,500,000  towards  carrying  on  the  war  with  France." 
The  whole  of  the  capital  of  the  bank,  amounting  to 


31 


^1,200,000,  was  loaned  to  the  government  at  8  per 
cent  per  annum,  and  £4,000  in  addition  was  to  be 
paid  to  the  bank  annually,  for  its  agency  in  the  man- 
agement of  the  loan.  For  the  remaining  £300,000, 
which  had  been  subscribed  to  make  up  the  required 
amount,  the  government  issued  obligations  to  pay 
annuities  directly  to  the  individual  subscribers.  This 
wfis  the  first  permanent  debt  created  by  the  govern- 
ment of  Great  Britain,  for  which  it  was  only  neces- 
sary to  provide  the  annual  interest,  and  it  may  be 
considered  as  the  commencement  of  the  national  debt, 
which  has  ever  since  continued  to  augment.  The  notes 
issued  by  the  bank  commenced  the  system  of  paper 
money  there,  being  the  first  paper  security  that  was 
used  to  pass  from  hand  to  hand  as  money,  except 
the  receipts  for  more  considerable  amounts  of  coin 
deposited  with  goldsmiths  in  their  capacity  as  bankers, 
which  had  for  convenience  been  sometimes  used  in  that 
way  among  merchants. 

At  first,  the  lowest  sum  for  which  the  bank  issued 
any  of  its  notes  was  twenty  pounds,  equal  to  nearly  one 
hundred  dollars  in  the  money  of  the  United  States ;  and 
this  continued  sixty-five  years,  until  1759,  when  bills 
were  issued  for  ten  pounds,  that  the  bank  might  more 
conveniently  loan  to  government  the  necessary  sup- 
plies of  money  to  carry  on  the  French  war  of  that 
period.  It  was  not  until  1777,  during  the  war  of  the 
American  revolution,  that  the  bank  was  allowed  to 
issue  notes  of  so  small  a  denomination  as  five  pounds, 
equal  to  nearly  twenty-five  dollars  of  the  money  of  the 
United  States.  The  object  in  reducing  the  denomina- 
tion of  notes,  in  each  instance,  was  to  aid  the  govern- 
ment in  obtaining  money  to  carry  on  expensive  wars. 


82 


'ii 


k  > 


Five  pounds  continued  to  be  the  minimum  sum  for 
which  a  note  could  be  issued  by  the  Bank  of  England 
until  1797,  during  the  war  against  the  French  republic, 
wlien  the  bank  suspended  specie  payments.  Then,  in 
consequence  of  the  depreciation  of  its  notes  as  com- 
pared with  specie,  it  became  necessary,  for  the  con- 
venience of  trade,  to  issue  one  and  two  pound  notes, 
equal  to  only  five  and  ten  dollars  of  the  money  of  the 
United  States.  These  small  notes  were  considered  a 
temporary  expedient  only,  to  meet  one  of  the  exigen- 
cies of  the  suspension  of  specie  payments.  And,  by 
the  act  passed  in  1819  for  the  resumption  of  specie 
payments,  the  lowest  denomination  of  notes  issued  by 
the  bank  was  again  limited  at  five  pounds,  to  take 
effect  after  May,  1823.  /      , 

And  here  may  be  noted,  in  passing,  how  much  the 
history  of  the  currency  of  England,  during  the  last  cen- 
tury, has  been  connected  with  the  history  of  America. 
The  first  issue  of  bank-notes  in  England  of  the  value 
of  ten  pounds  was  to  help  the  war,  in  which  Wolfe 
climbed  the  heights  of  Abraham,  and  ended  his  glori- 
ous career  with  the  capture  of  Quebec  and  Canada,  — 
the  same  war  in  which  Washington  received  his  fii^it 
lessons  in  the  military  art. 

The  issue  of  bank-notes  for  five  pounds  was  first 
made  during  our  revolution,  in  which  Washington 
acquired  his  immortal  renown,  and  when  the  alliance 
with  France,  of  which  the  motive  was  mainly  the  loss 
of  Canada  in  the  previous  war,  did  so  much  to  aid  and 
to  secure  our  independence  as  a  nation.      ,    .,, 

This  revolution  of  America  planted  the  seeds  which 
ripened  in  the  revolution  of  France.  Soon  followed  the 
long  wars  ending  in  1815,  which  caused  the  Bank  of 


M 


33 


England  to  stop  payment,  and  to  issue  notes  of  one 
pound,  the  smallest  paper  money  ever  known  in  Eng- 
land. 

It  is  argued  by  those  who  advocate  the  use  of  paper 
money,  that,  "during  the  suspension  of  specie  pay- 
ments by  the  Bank  of  England,  though  the  bills  of 
the  bank  depreciated  nearly  twenty-five  per  cent.,  the 
shares  of  the  bank  were  worth  nearly  or  quite  one 
hundred  per  cent,  advance."  This  depreciation  of  its 
bills  made  no  difference  to  the  bank.  The  public 
bore  that  loss ;  and,  so  long  as  the  public  was  obliged 
to  receive  the  bills  and  use  them  as  money,  the  bank 
gained  its  interest  on  their  circulation.  It  is  not  sur- 
prising that  the  profits  of  the  bank  increased,  with 
the  unrestricted  power  to  issue  any  amount  of  notes 
irredeemable  in  specie,  or  that  the  increase  of  prof- 
its should  have  been  nearly  or  quite  sufficient  to 
double  the  price  of  the  stock  of  the  bank,  while 
there  was  not  then  even  the  check  of  convertibility 
to  control  the  amount  of  paper  money  that  the  bank 
could  issue. 

Again,  it  is  said  that  Avhen  the  government  author- 
ized the  bank  "  to  issue  promises  to  pay  money  on 
demand,  to  be  used  for  currency,  it  did  not  imdertake 
to  make  them  a  legal  tender  for  the  payment  of 
debts  from  one  individual  to  another,  or  to  compel 
its  own  creditors  to  receive  them  as  money.  The 
law  left  these  bank-notes  exactly  what  they  were, 
promises  to  pay  money.  It  made  it  lawful  for  the 
bank  to  issue  them  to  such  persons  as  should  choose 
to  receive  them;  to  be  used  for  currency  by  such 
persons,  and  by  such  persons  only,  as  should  choose 
so  to  use  them."    Is  not  this  statement  one  of  those 

5 


w 


34 


1=  ';:!lli 


n 


ingenious  sophistries,  that  are  sometimes  used  to  de- 
ceive the  public  ?  It  is  well  known  that  individuals 
are  compelled  to  use  for  money  whatever  currency  is 
legalized  and  may  be  in  general  use.  They  have 
usually  no  choice  about  it.  When  paper  money  is 
authorized  by  a  government,  or  even  permitted,  it 
must  become  the  common  currency  of  that  country. 
The  government,  therefore,  sanctions,  and  stringently, 
though  indirectly,  requires  the  public  to  use  bank- 
notes for  money,  when  it  authorizes  and  sanctions  the 
issue  of  them  by  the  banks.  In  Great  Britain,  dur- 
ing the  suspension  of  specie  payments,  laws  were 
enacted  to  protect  the  banks  against  suits  to  enforce 
the  promise  of  payment  on  their  notes.  The  State 
governments  in  the  United  States  have  done  the 
same  thing  under  similar  circumstances. 

No  one  can  doubt  that  the  issue  of  paper  money, 
to  be  used  for  currency,  is  profitable  to  a  bank.  It 
is  most  profitable  during  a  suspension  of  specie  pay- 
ments ;  because  the  bank  can  then  issue  and  keep  in 
circulation  larger  amounts  of  it.  It  can  also  loan  the 
whole  amount,  as  it  is  not  then  necessary  to  keep 
any  specie  on  hand  for  the  redemption  of  the  bills. 
When  the  Bank  of  England  suspended  specie  payments 
in  1797,  the  amount  of  its  bills  in  circulation  was 
£9,674,780,  equal  to  about  forty-five  millions  of  dollars 
in  the  money  of  the  United  States.  At  the  close  of 
the  war  in  1815,  it  amounted  to  £27,274,670,  or 
about  $175,000,000.  It  must,  of  course,  have  been 
very  profitable  to  the  bank  to  keep  up  such  an  amount 
of  circulation ;  and  it  is  not  surprising  that  the  value 
of  the  stock  was  nearly  or  quite  doubled.  But,  in 
considering  the  public  interest,  it  is  more  important 


35 


to  know  what  effect  so  great  an  increase  of  circula- 
tion produced  upon  the  whole  community,  rather  than 
how  the  few  prospered  who  were  stockholders  of  the 
bank.  The  amount  of  the  circulation  of  the  Bank  of 
England,  during  the  suspension  of  specie  payments, 
can  be  ascertained  from  official  documents ;  but  it 
is  not  so  easy  to  know. the  extent  of  the  circulation 
of  notes  by  private  and  local  banks. 

English  writers  upon  that  period  of  the  financial 
history  of  England  assert,  that  scon  after  the  suspen- 
sion of  specie  payments,  on  the  27th  February,  1797, 
the  continued  advance  of  the  prices  of  all  sorts  of 
merchandise,  occasioned  by  the  rapid  increase  of  bank- 
notes in  circulation,  and  the  progressive  depreciation 
of  the  currency  by  the  great  additions  to  it  of  this 
paper  money,  caused,  with  some  few  interruptions, 
"  an  appearance  of  growing  and  perennial  prosperity 
amongst  every  class  of  the  people,  but  the  class  of 
those  who  toil.  No  branch  of  industry  escaped  the 
delusive  effect  produced  by  this  plethora  of  paper 
money.  Enormous  fortunes  were  made  by  contracts 
with  the  government  for  the  supply  of  stores  and  pro- 
visions; but  more  particularly  by  government  loans, 
in  some  of  which,  the  profits  were  so  great  that  the 
gains  on  one  might  be,  almost  literally,  said  to  be 
capable  of  affording  the  means  for  the  next  one." 
"All  who  dealt  in  money,  capitalists,  bankers,  stock- 
jobbers, and  speculators  of  every  kind,  and  all  mer- 
chants, manufacturers,  and  traders  were  put  in  a  posi- 
tion in  which  profit  and  wealth  flowed  in  upon  them." 
"While  every  thing  else  advanced  nominally  in  price, 
in  order  to  keep  pace  with  the  falling  value  of  the  in- 
convertible paper  money,  which  was  now  being  poured 


86 


'jl!l!: 
'-!!!;, 


forth  all  over  the  kingdom,  the  wages  of  labor  lagged 
behind,  and  the  temptation  to  rob  the  poor  was  increas- 
ing." '■'  For  as  the  paper  money  8welled  in  amount, 
the  prices  and  rates  of  every  thing  grew  and  rose 
apace  ;  while  the  receivers  of  wages,  the  laborers, 
both  agricultural  and  commercial,  were  gradually 
depressed,  the  ratc;s  of  wages  generally,  not  keeping 
pace  with  the  advance  in  prices."  "  Money  was  drawn 
up  into  great  masses  in  the  possession  of  saving  per- 
sons, while  the  laborers  were  turned  over  to  the  pro- 
tection of  the  poor-laws."  "  It  is  certain,  that  up  to 
the  time  of  the  accession  of  George  III.,  in  1760, 
many  of  the  rural  population  owned  their  cottages 
and  gardens.  After  that  time,  the  increasing  difficulty 
of  living  caused  them  rapidly  to  disappear.  The  cot- 
tage of  the  grandfather  was  sometimes  sold  to  pro- 
vide maintenance  for  the  pauper  grandchildren.  And, 
at  the  end  of  the  war  in  1815,  little  of  this  property 
of  the  industrious  poor  was  left."  "  During  the  time 
that  enormous  fortunes  were  being  realized  by  the 
trading  classes,"  "  those  who  do  the  labor  of  the  coun- 
try were  gradually  and  silentlv  being  stripped  of  all 
hold  upon  a  soil,  which,  were  it  not  for  them,  would 
be  worthless." 

Such  are  represented  to  have  been  some  of  the 
effects  produced  by  the  progressive  increase  of  paper 
money  during  the  suspension  of  specie  payments,  which 
was  so  profitable  to  the  Bank  of  England,  that  the 
stock  of  the  bank  nearly  or  quite  doubled  in  value. 

It  is  well,  however,  to  examine  it  still  further,  and 
to  ascertain  more  particularly  what  effects  were  pro- 
duced by  the  contraction,  which  must  always  follow,  at 
some  time,  one  of  these  inflations  of  currency. 


■li 


87 


The  quantity  of  paper  money  in  circulation  had 
been  almost  constantly  increasing  during  the  suspen- 
sion of  specie  payments,  and  prices  constantly  ris- 
ing in  consequence  of  it.  But,  immediately  alter  the 
peace  in  1815,  it  "was  well  understood  that  this  de- 
preciation of  the  currency  would  not  be  much  longer 
tolerated.  "With  the  interruption  of  foreign  commerce, 
occasioned  by  the  war,  some  of  the  evils  of  such  a 
condition  of  currency  could  be  restrained.  But  the 
revival  of  commercial  activity,  as  soon  as  peace  was 
declared,  would  have  inundated  the  country  with  the 
products  of  foreign  labor,  which  would  certainly  dis- 
courage domestic  industry.  Notice  was  given  by  the 
government  to  the  Bank  of  England  that  the  suspen- 
sion would  no  longer  be  sanctioned,  and  that  they 
must  prepare  for  the  resumption  of  specie  payments. 
It  was  not,  however,  until  1819  that  the  act  of  Par- 
liament was  passed  for  immediate  resumption.  At 
the  same  time,  all  paper  money  of  a  smaller  denomi- 
nation than  five  pounds  was  forbidden,  the  prohibi- 
tion to  take  effect  after  1st  May,  1823. 

Much  has  been  said  and  written  respecting  the  ex- 
tent of  the  depreciation  of  bank  paper  in  Great  Britain 
during  the  suspension  of  specie  payments.  It  is  dif- 
ficult to  define  it  precisely,  but  there  is  no  doubt 
that,  at  times,  it  considerably  exceeded  twenty-five 
per  cent.  The  quantity  of  paper  money  in  circula- 
tion was  constantly  fluctuating,  and  at  the  same  time 
the  prices  of  gold  and  of  property  of  every  kind. 
Five  pounds  in  paper,  was  a  common  price  for  the 
ounce  of  gold;  and  light  guineas,  which  could  be 
openly  sold,  were  legally  worth  more  than  those  of 
full  weight.    Five  pounds  in  paper  was  often  paid 


i'. 


% 


I IP'^' 


38 


Id.::;; 


f;!: 


for  three  and  a  half  light  guineas,  because  not  being  of 
the  standard  weight,  they  were  not  considered  legal 
coin  of  the  realm.  Laws  had  been  passed  prohibit- 
ing, under  penalties,  the  taking  of  bank-notes  at  less, 
or  of  coin  at  more,  than  their  nominal  value.  The 
price  of  gold  is  not,  under  such  circumstances,  a  cor- 
rect measure  of  the  depreciation  of  the  paper  money. 
The  average  price  of  wheat  is,  perhaps,  the  surest 
criterion  by  which  to  judge  of  the  extent  of  the 
depreciation  of  the  currency.  From  1783  to  1794,  the 
price  of  wheat  in  Great  Britain  averaged  a  trifle  over 
forty  shillings;  and  from  1808  to  1815  the  average 
price  was  about  ninety-five  shillings.  Since  then,  it 
has  been  more  difficult  to  estimate  the  average  price, 
for  the  purpose  of  comparison,  in  consequence  of  the 
corn  laws,  which  were  first  passed  in  1815 ;  but,  dur- 
ing the  seasons  of  good  crops  since  that  year,  in  which 
the  corn  laws  would  be  nearly  inoperative,  the  usual 
price  has  been  between  forty-five  and  fifty  shillings; 
and  since  the  corn  laws  were  repealed,  in  January, 
1849,  and  all  grains  imported  into  England  have  paid 
only  a  nominal  duty,  the  price  of  wheat  has  rarely 
exceeded  fifty  shillings,  until  the  two  last  years,  one 
of  short  harvest,  the  other  of  war. 

One  of  the  first  troubles,  which  occurred  after  the 
peace  in  1815,  and  in  consequence  of  the  prepara- 
tions to  restore  the  depreciation  of  the  currency,  was 
that  of  "  plenty  and  cheapness."  The  people  had 
looked  forward  to  it  as  OQe  of  the  greatest  blessings 
of  peace.  Among  their  illuminated  devices  to  cele- 
brate the  close  of  the  long  wars  which  ended  in  1815, 
was  a  great  loaf  of  bread  and  a  foaming  pot  of  beer, 
with  the  mottoe»,  "I  am  coming  down,"  and  "I  am 


39 


coming  after  you."  But  "  this  vulgar  view  of  cheap- 
ness" was  far  from  being  agreeable  to  those  who  had 
been  accumulating  large  fortunes  during  the  period 
of  high  prices  and  speculation.  The  discounts  of  the 
Bank  of  England  were  reduced  in  one  year  after 
February,  1816,  from  twenty-three  millions  down  to 
eight  millions  of  pounds  sterling.  "  This  reduction  of 
private  loans  answered  two  purposes  of  the  bank ;  it 
kept  the  circulation  within  bounds;  and,  if  it  slaugh- 
tered the  merchants  and  manufacturers,  it  brought 
about  another  novelty,  a  reduction  in  the  price  of 
gold  down  to  four  pounds  the  ounce,  or  nearly  to 
the  mint  price  (£3.  17s.  lO^d.)."  The  consequences 
of  it  were,  that  the  prices  of  all  articles  suddenly 
diminished  to  a  ruinous  extent.  Distress  and  bank- 
ruptcy extended  to  every  part  of  the  country,  and 
overwhelmed  many  of  those  who  were  withdrawn  from 
trade,  as  well  as  those  who  were  engaged  in  the 
active  pursuits  of  business.  In  addition  to  the  enor- 
mous numbers  of  merchants  and  others,  of  all  grades 
and  distinctions,  no  less  than  eighty-nine  country  banks 
became  insolvent.  The  mercantile  part  of  the  com- 
munity, however,  after  a  time,  began  to  accommo- 
date their  business  to  the  new  scale  of  prices  and  to 
the  changed  condition  of  the  currency,  and  trade 
gradually  resumed  its  usual  course. 

At  the  commencement  of  the  suspension  of  specie 
payments,  in  1797,  the  number  of  country  banks  in 
Great  Britain  was  estimated  at  about  two  hundred. 
They  increased  rapidly,  from  year  to  year,  until  1815, 
when  the  number  was  nine  hundred  and  forty.  This 
"  enormous  vegetation  of  banks,"  possessing  the  power 
to  issue  bills  to  be  used  for  currency,  must  have  pro- 


40 


'i' , 

i  I 


III'! 


duced  a  vast  increase  in  the  amount  of  the  paper 
money  in  circulation  during  the  suspension  of  specie 
payments.  And  it  is  rather  a  matter  of  surprise  that 
they  should  have  been  so  prudently  managed,  that 
only  about  eighty-nine  of  them  were  made  bankrupt 
by  the  contraction  of  the  currency  when  the  resump- 
tion took  place. 

The  petition  of  one  Charles  A.  Thompson,  for  the 
redress  of  his  losses,  which  was  presented  in  1823  to 
the  House  of  Commons,  by  Lord  Folkstone,  and  to 
the  House  of  Lords,  by  Earl  Stanhope,  illustrates  the 
effects  produced  by  the  change  from  a  condition  of 
currency  which  was  so  profitable  to  the  Bank  of  Eng- 
land that  its  stock  nearly  or  quite  doubled  in  value. 
The  petition  stated,  that  some  years  before,  during 
the  suspension  of  specie  payments,  the  petitioner,  in 
connection  with  his  father,  had  purchased  two  estates, 
one  costing  £72,000,  which  they  paid  for  in  money, 
the  other  costing  £60,000,  which  was  partly  paid 
for  in  money,  and  the  balance  in  a  mortgage  upon 
both  of  the  estates.  In  consequence  of  the  reduction 
of  prices  occasioned  by  the  contraction  of  the  cur- 
rency to  resume  specie  payments,  both  estates  together 
would  not  sell  for  enough  to  pay  the  mortgage,  and 
it  had  been  foreclosed.  The  party  from  whom  the 
estate  was  purchased  for  .£60,000  had  received  £18,- 
555  in  money  on  account  of  it,  and  now,  in  addition 
to  that  sum  of  money,  possessed  both  of  the  estates, 
which  had  cost  £132,000.  In  consequence  of  this 
great  change  in  the  value  of  property,  resulting  from 
the  changes  in  the  currency,  which  were  authorized 
and  sanctioned  by  the  governm;jnt,  he  had  become 
bankrupt.     "  His  father  had  died  of  a  broken  heart. 


41 


and  he  himself  is  a  ruined  man,  with  seven  children 
of  his  own,  ten  of  his  brother's,  and  seven  of  his  sis- 
ter's, all  dependent  on  him.  He  imputes  no  inten- 
tional wrong  doing,  but  grievous  error  to  the  gov- 
ernment; yet  he  hopes  they  will  not  change  error 
into  injustice  by  persevering  in  it;"  and  prays  "for 
an  equitable  adjustment  jo£  his  own  and  other  similar 
claims  growing  out  of  the  changes  authorized  by  the 
government  in  the  currency  of  the  country."  This 
was  only  one  of  many  thousand  instances,  which 
occurred  at  that  time.  Few  of  them  were  ever  re- 
corded, and  nearly  all  are  now  forgotten. 

The  admirers  and  advocates  of  a  cheap  currency 
may  say,  that  all  the  evils  of  this  period,  in  Great 
Britain,  Avere  the  consequences  of  the  suspension  of 
specie  payments,  and  of  the  efforts  to  restore  a  depre- 
ciated paper  money  to  par,  as  compared  with  specie. 
Therefore,  they  argue,  that  such  examples  can  be 
cited  only  as  objections  to  the  use  of  an  inconvertible 
paper  money.  This  is  a  mistake.  For  the  purpose 
of  proving  that  such  evils  are  not  peculiar  to  incon- 
vertible paper  money  or  to  a  suspension  and  resump- 
tion of  specie  payments,  it  may  be  well  to  notice 
rfome  of  the  effects  of  the  next  great  monetary  crisis 
in  Great  Britain,  the  troubles  of  which  commenced 
in  the  latter  part  of  the  year  1825,  some  years  after 
the  resumption  of  specie  payments. 

The  act  of  1819,  providing  for  the  immediate  re- 
sumption of  specie  payments,  prudently  delayed  the 
time  of  withdrawing  from  circulation  the  notes  of  a 
smaller  denomination  than  five  pounds  beyond  that 
fixed  for  the  resu.iption  of  specie  payments,  so  as  not 
to  increase  the  inconvenience  of  that  measure.     This 

6 


iiit^ 


■\\- 


42 


l> 


If 


allowed  ample  time  to  the  banks  to  recall  gradually 
the  small  notes,  that  specie  might  come  in  to  supply 
the  place  of  them.  The  country  bankers  were  natu- 
rally reluctant  to  give  up  the  profits  which  they  had 
derived  from  issuing  notes  below  five  pounds.  These 
had  been  mostly  withdrawn  from  circulation,  and  both 
the  public  and  the  banks  had  prepared  to  have  the 
law  which  forbade  their  circulation  carried  into  efiect. 
Taking  advantage  of  the  discontent  caused  by  the 
restriction  of  the  currency  in  consequence  of  the  re- 
sumption of  specii  T/ments,  they  succeeded  in  in- 
ducing the  ministry  ,  i  parliament  to  sanction  the 
circulation  of  them  for  an  additional  term.  Early  in 
the  year  1823,  and  only  a  short  time  before  the  period 
named  in  the  law  of  1819  for  rendering  the  small  notes 
illegal,  the  act  was  passed  by  Parliament  to  authorize 
the  banks  to  continue  their  circulation  for  eleven  years 
longer. 

The  joy  of  the  unreflecting  portion  of  the  public 
at  this  result  was  excessive.  "  Landlords,  fiirmers, 
bankers,  merchants,  ship-owners,  and  tradesmen,  all 
joined  in  the  universal  exultation.  They  were  not 
long  in  persuading  themselves  and  each  other  that 
the  sun  of  national  prosperity  was  now  risen,  never 
to  decline,  never  to  be  eclipsed  again."  Fortunately 
for  tlie  Bank  of  England,  it  would  not  take  advan- 
tage at  that  time  of  the  new  law,  but  continued  to 
issue  no  bills  of  a  smaller  denomination  than  five 
pounds.  The  country  banks  geneially  availed  them- 
selves of  it,  and  inundated  the  currency  of  the  coun- 
try with  an  immense  amount  of  small  notes.  Mr. 
Thomas  Tooke,  a  celebrated  writer  on  finance,  in  a 
treatise  on  the  state  of  the  currency,  which   he   pub- 


43 


lished  in  1826,  estimated  the  addition  to  the  circula- 
tion at  this  time  to  have  been  not  less  than  fifty  per 
cent.  All  these  notes  in  circulation  were  redeemable 
in  specie,  on  demand ;  and  were,  therefore,  always 
at  par  as  compared  with  specie.  But  this  did  not 
diminish  their  effect  in  depreciating  the  currency. 
The  immediate  consequence  of  the  great  issues  of 
paper  money  was  a  general  rise  in  the  prices  of  prop- 
erty of  every  kind,  and  apparent  prosperity  in  all 
branches  of  industry  and  trade.  The  importations  of 
the  products  of  foreign  labor  increased  immensely, 
and,  consequently,  the  revenue  from  duties  on  im- 
ported goods.  At  the  next  session  of  Parliament,  in 
1824,  the  Hon.  Frederick  Robinson,  afterwards  Lord 
Ripon,  then  Chancellor  of  the  Exchequer,  alluded  ex- 
ultingly  to  the  great  rise  of  prices  that  had  occurred, 
the  increased  revenue,  and  "  the  matchless  prosperity 
of  the  realm ; "  boasting  of  them  as  the  result  of 
the  wisdom  of  the  ministry  in  permitting  the  con- 
tinued circulation  of  the  small  bills.  This  afterwards 
brought  upon  him  the  cognomen  of  "Mr.  Prosperity 
Robinson.'* 

This  apparent  prosperity  continued  less  than  three 
years.  Towards  the  autumn  of  1825,  strong  symp- 
toms of  an  approaching  catastrophe  began  to  be  seen 
in  the  extravagant  prices  of  many  articles  of  com- 
mon consumption.  "  The  Bank  of  England  had  become 
alarmed  as  early  as  in  July  of  that  year,  and  began 
to  draw  in  their  notes  by  privately  selling  Exchequer 
bills.  It  was  too  late,  however,  to  avoid  a  crisis."  The 
enormous  amount  of  imported  goods  must  be  paid 
for,  and  the  bills  drawn  against  exports  were  not 
sufficient  for  it.    The  coin  of  the  country  was,  there- 


44 


fore,  exported  in  large  quantities.  Under  these  cir- 
cumstances, tviih  a  circulation  of  paper  irmiey  convertible 
on  demand  in  specie,  the  depreciation  of  the  currency, 
and  the  high  prices  it  occasioned  could  not  be  sus- 
tained. As  the  demand  for  specie  continued  to  in- 
crease, the  banks  generally  became  alarmed,  and,  in 
December,  the  panic  commenced.  It  spread  through 
the  whole  country.  Great  Britain  and  Ireland  seemed 
to  be  one  scene  of  confusion,  dismay,  and  bankruptcy, 
worse  even  than  had  existed  at  any  time  during  the 
process  of  resuming  specie  payments  some  years  before. 
Notwithstanding  that  the  Bank  of  England  had 
foreseen  the  trouble,  and  commenced  so  early  to  pre- 
pare for  it,  even  that  great  institution  sustained  itself 
with  difficulty,  and  its  coin  was  at  one  time  reduced 
nearly  to  a  million  of  pounds  sterling.  There  was 
a  probability  of  its  being  entirely  exhausted  of  specie, 
when,  as  a  temporary  resource,  the  bank  availed  itself 
of  the  law  to  issue  small  notes,  having  accidentally 
found  in  the  bank  a  box  of  the  old  notes  for  one 
and  two  pounds,  which  had  been  used  during  the 
suspension  of  specie  payments,  and  happened  not  to 
have  been  cancelled.^ 


Ill' 


^  The  following  evidence  before  the  secret  committee  of  the  House  of 
Commons,  in  1832,  was  given  by  Mr.  Jeremiah  Harman,  then  one  of  the 
principal  directors  of  the  Bank  of  England. 

Q.  Was  there  a  period  in  December,  1825,  during  which  the  bank  con- 
templated the  probability  of  being  entirely  exhausted  of  gold  ?  A.  At  the 
latter  end  of  1825,  decidedly. 

Q.  Do  you  recollect  the  lowest  quantity  of  gold  which  the  bank  possessed 
during  any  period  of  December,  1825  ?  A.  I  do  not  remember  immediately ; 
but  it  was  viiserahly  low. 

Q.  Was  it  under  the  sum  of  £1,300,000  you  have  named  ?  A.  Unquestion- 
ahlij. 


45 


It  is  difficult  to  estimate  the  extent  of  the  injury 
produced  by  this  revulsion  of  paper  money  in  Great 
Britain.  It  extended  through  the  commercial  world. 
In  London,  where  the  Bank  of  England  alone  issues 
notes  for  circulation,  the  failures  among  the  bankers 
were  few  and  less  disastrous.  But  more  than  one 
hundred  of  the  country  banks  failed,  and  countless 
numbers  of  merchants,  manufacturers,  and  traders  of 
every  kind  became  bankrupt. 

An  act  was  finally  passed  by  Parliament  in  1829,  to 
abolish  all  paper  money  in  England  of  a  smaller  de- 
nomination than  five  pounds,  equal  to  nearly  twenty- 
five  dollars  of  the  money  of  the  United  States ;  but,  in 
order  to  neutralize  the  opposition  made  to  this  meas- 
ure by  the  Scotch  banks,  the  small  note  circulation 
of  Scotland  was  continued.    This  exception   in  their 


Q.  It  was  stated  by  the  late  Mr.  Huskisson,  that  he,  as  a  member  of  the 
administration  at  that  time,  suggested  to  the  bank,  that,  if  their  gold  was 
exhausted,  they  should  phice  a  paper  against  their  doors,  stating  that  they 
had  not  gold  to  pay  with,  but  might  expect  to  have  gold  to  recommence  pay- 
ments in  a  short  time ;  do  you  recollect  such  a  suggestion  ?  A.  There  was 
such  a  suggestion. 

Q.  What  would,  in  your  opinion,  have  been  the  consequence  of  that 
paper,  placed  against  the  door  of  the  bank,  without  preparation  to  support 
commercial  and  financial  credit  ?    A.  I  hardly  know  how  to  contemplate  it. 

Q.  The  bank  issued  one  pound  notes  at  that  period.  Was  that  done  to 
protect  its  remaining  treasure  ?  A.  Decidedly ;  and  it  worked  wonders. 
And  it  was  by  great  good  luck  that  we  had  the  means  of  doing  it ;  because 
one  box,  containing  a  quantity  of  one  pound  notes  had  been  overlooked, 
when  the  others  were  destroyed,  and  they  were  forthcoming  at  the  lucky 
moment. 

Q.  Had  there  been  no  foresight  in  the  preparation  of  these  notes  ? 
A.  None  whatever;  I  solemnly  declare. 

Q.  Do  you  think  that  the  issue  of  these  one  pound'?  notes  did  avert  a 
complete  drain?  A.  As  far  as  my  judgment  goes,  it  suued  the  credit  of  the 
country. 


46 


favor  has  undoubtedly  been  profitable  to  the  Scotch 
banks.  But,  as  their  circulation  is  local,  not  extend- 
ing beyond  the  borders  of  that  country,  the  evils 
resulting  from  it  are  diminished.  This  currency  of 
paper  money  of  small  denominations  may  account 
partly  for  the  poverty  that  exists  in  Scotland. 

From  this  last-recited  instance  of  the  money  crisis 
in  England,  of  1825,  when  the  paper  money  had 
been  redeemable  in  coin,  as  compared  with  the  previ- 
ously recited  instance  when  the  paper  money  was 
not  redeemable  in  coin,  an  opinion  may  be  formed 
of  the  effects  and  dangers  of  such  fluctuations  as  oc- 
curred under  those  different  circumstances.  The  only 
essential  difference  will  be  found  to  be,  that  with 
paper  money  convertible  into  specie  on  demand,  the 
effects  of  a  depreciation  of  the  currency  are  more 
rapid  and  violent.  The  crisis  will  go  through  its  dif- 
ferent stages,  from  the  high  price  and  apparent  pros- 
perity of  the  inflation,  to  the  decline  of  prices  and 
real  distress  of  the  contraction  of  the  currency  that 
must  necessarily  follow,  in  less  time  than  when  the 
paper  money  is  not  convertible  on  demand.  The 
resumption  of  specie  payments  was  in  1819.  There- 
fore that  "necessary  quality  of  a  good  currency," 
being  redeemable  on  demand  in  specie,  was  not  want- 
ing to  the  paper  money  in  circulation  during  the 
financial  troubles  of  1825. 

The  principal  object  of  the  currency  laws,  passed 
in  Great  Britain  in  1819,  was  to  restore  the  paper 
currency  in  circulation  to  par-  as  compared  with  the 
precious  metals.  The  apt  of  1844  was  intended  to 
restrict  the  occasional  depreciations  of  the  currency 
as  compared  with  the  currencies  of  other  countries,, 


47 


by  limiting  the  amount  of  paper  money  which  could 
be  issued  by  the  banks.  Those  laws  were  in  accord- 
ance with  the  wise  policy,  which  should  be  found  in 
the  financial  history  of  all  civilized  nations.  That  is 
to  say,  as  a  country  grows  richer,  it  ought  to  provide 
constantly  a  more  and  more  substantial  basis  for  any 
paper  currency  that  it  may  have  been  considered  expe- 
dient to  tolerate  at  an  earlier  time,  and  under  different 
circumstances,  until  the  paper  can  be  wholly  with- 
drawn from  circulation,  and  the  currency  of  the  coun- 
try consist  wholly  of  real  money. 

The  act  of  1844,  for  the  renewal  of  the  charter 
of  the  Bank  of  England,  is  the  only  important  change 
in  the  currency  laws  of  Great  Britain  since  1819. 
The  object  of  it  is,  to  limit  the  control  of  the  bank 
over  the  currency  of  the  country  by  restraining  its 
issues  of  paper  money.  It  permits  the  bank  to  issue 
notes,  it  the  extent  of  the  government  stocks  tvhich  it  holds, 
not  exceeding  fourteen  millions  of  pounds  sterling, 
that  having  been  found  to  be  the  lowest  amount  to 
which  the  issues  of  the  bank  had  been  for  many  years 
reduced.  It  also  allows  the  issue  of  post-notes,  for 
the  convenience  of  remittances,  to  the  extent  of  two 
millions.  For  every  note  issued  beyond  these  amounts, 
(in  all,  sixteen  millions  sterling)  it  must  hold  an  equal 
sum  of  the  precious  metals.  It  has,  therefore,  no 
interest  in  extending  its  issues  of  paper  money  beyond 
the  sixteen  millions,  as  it  could  not  increase  its  loans 
or  investments  by  doing  so,  but  is  obliged  to  keep  the 
whole  of  such  excess  on  hand  in  bullion  or  coin. 

The  wisdom  of  this  law  has  been  questioned,  and 
in  some  respects,  it  appears  to  be  justly  so,  unless  it 
was  intended,  as  very  possibly  it  may  have  been,  only 


1   >      , 


P 


48 


m. 


as  a  temporary  measure,  to  prepare  the  way  for  abol- 
ishing altogether  the  circulation  of  paper  money  in 
England.  The  deposits  of  the  government  and  of  indi- 
viduals always  amount  to  many  millions.  Unexpected 
drafts  upon  those  deposits  may,  at  some  time,  place 
the  bank  in  a  position  that  would  cramp  its  opera- 
tions, or  render  it  necessary  to  transgress  the  law. 
Should  the  precious  metals  in  the  bank  be  ever  en- 
tirely withdrawn,  the  law  requires  its  circulation  to 
be  reduced  to  sixteen  millions,  including  the  two  mil- 
lions of  post-notes.  But,  suppose  the  amount  of  the 
paper  in  circulation,  including  the  post-notes,  to  be 
twenty-six  millions,  and  the  coin  and  bullion  in  the 
bank  to  be  ten  millions  (which,  certainly,  may  not  be 
a  weak  condition  for  the  bank),  the  payment  by  the 
bank  of  drafts  against  deposits,  if  paid  in  notes,  would 
create  an  excess  of  notes  in  circulation  beyond  the 
amount  allowed  by  the  act ;  while,  on  the  other  hand, 
if  the  drafts  were  paid  in  coin,  the  precious  metals 
in  the  bank  would  be  reduced  below  the  legal  amount. 
The  bank,  in  such  a  case,  though  perfectly  strong  to 
fulfil  its  obligations,  would  seem  to  be  checkmated  by 
the  law.  Its  only  resource,  then,  unless  a  sufficient 
amount  of  its  loans  were  falling  due,  would  be  to  dis- 
pose of  securities  in  order  to  get  in  some  of  its  notes 
or  coin;  a  resource  that  might  produce  great  incon- 
venience to  the  public,  and  much  loss  to  the  bank. 

The  opinion  has  been  expressed  by  eminent  bankers, 
that,  in  case  of  a  serious  war,  the  Bank  of  England 
could  not  sustain  specie  payments ;  and  therefore,  that 
an  order  in  council  should  be  issued,  immediately  on 
the  commencement  of  such  a  war,  to  oblige  the  bank 
to  suspend  specie  payment  at  once,  before  its  specie 


49 


was  drawn  out.  For,  the  very  apprehension  of  an 
occurrence  similar  to  that  of  1797,  would  cause  a 
run  for  specie,  which  would  render  a  suspension  un- 
avoidable. 

If  the  effect  of  war  upon  the  currency  of  England, 
where  the  circulation  of  paper  money  is  comparatively 
so  limited,  and  where  there  are  no  bank-notes  of  a 
smaller  denomination  than  five  pounds,  equal  to  nearly 
twenty-five  dollars  of  our  money,  would  cause  a  sus- 
pension of  specie  payments,  what  would  be  the  con- 
sequences in  the  United  States,  where  paper  money 
is  issued  in  notes  of  every  denomination  down  to  one 
dollar;  and  where  there  are  more  than  twelve  hun- 
dred different  banks,  spread  over  the  whole  country, 
and  established  in  each  of  the  different  States  by  the 
State  governments,  at  the  discretion  of  each,  and  there- 
fore subject  only  to  a  local  and  very  limited  control, 
and  entirely  independent  of  the  influence  of  the  na- 
tional government  ? 

From  all  these  considerations  it  may  be  concluded, 
that  few,  if  any,  benefits  now  result  from  the  use  of 
paper  money  in  England,  except  the  profit  to  the 
bank.  Considering  the  amount  of  specie  which,  un- 
der their  system,  must  be  kept  in  the  bank  to  be 
ready  to  redeem  their  notes  on  demand,  and  all  the 
trouble  and  expense  incidental  to  the  manufacture 
of  the  notes,  and  the  precaution  necessary  to  guard 
against  frauds,  it  is  doubtful,  if  the  account  could  be 
fairly  stated,  if  the  profit  to  the  bank  be  very  great. 
Fifteen  or  twenty  millions  of  coin  would  more  than 
supply  the  place  of  the  notes  issued  by  all  the  banks 
in  England.  That  amount  of  coin  could  be  supplied 
to  take  the  place  of  the  paper  in  circulation,  without 

7 


411 


50 


inconvenience  or  difficulty,  during  any  of  the  seasons 
of  plethora  in  the  money  market  which  often  occur 
there,  when  new  sources  for  investment  are  sought 
after  in  every  direction.  The  inevitable  laws  of  trade, 
which  are  just,  and  gradual  and  uniform  in  their  oper- 
ation, would  then  be  left  free  to  produce  their  natural 
effects  upon  the  currency.  The  increase  of  real  money, 
accumulated  in  times  of  prosperity,  would  prevent,  in 
seasons  of  short  crops,  or  of  threatened  or  actual  wars, 
the  addition  to  the  public  calamity  of  the  evils  of 
those  money  panics,  peculiar  to  the  artificial  system 
of  paper  currency,  which  are  so  disastrous  in  their 
effects  upon  the  community,  and  may  even  for  a  time 
prevent  the  prompt  and  free  action  of  the  government. 
The  following  is  the  official  return  of  the  circulation 
of  the  Banks  in  Great  Britain  on  the  3d  of  Septem- 
ber, 1853 :  — 

The  Bank  of  England  notes  £22,836,269        Specie  £10,986,088 


Private  banks  " 

Joint- Stock  banks  " 

Total  in  England  " 

«'      «  Scotland  « 

«     «  Irela   I  " 


3,676,104 
2,984,560 

£29,496,933 
3,728,890 
5,230,387 


1,174,058 
1,447,830 


Total  in  Great  Britain,  £38,456,210    Total  "    £19,607,976 


■■    M. 


Currency  in  the  United  States. 

It  has  been  already  shown  that  the  great  objection 
to  the  use  of  paper  money  for  currency  is,  that  it 
produces  very  injurious  effects  upon  the  industry  of 
the  country,  by  stimulating  the  importation  of  the 
products  of   foreign  industry.     This  it  does  by  the 


51 


rise  of  prices,  which  it  causes,  increasing  thereby  the 
cost  of  production.  The  variations  that  occur  in  the 
quantity  or  amount  of  it  in  circulation,  render  it  a  con- 
stantly fluctuating  standard  instead  of  a  true  measure 
of  the  value  of  other  objects. 

The  first  effect  of  an  increase  of  the  money  in  cir- 
culation in  any  country  is  apparently  to  make  money 
plenty;  but  it  is,  in  fact,  a  depreciation  of  its  value. 
This  is  shown  by  the  general  advance  that  takes  place 
in  the  prices  of  commodities  of  every  kind.  When 
the  advance  of  prices  has  occurred,  money  becomes  as 
scarce  as  it  was  before.  It  is  true  that  it  is  not  al- 
ways the  amount  of  money  in  circulation,  which  settles 
the  question  of  plenty  or  scarcity  of  money.  "  Every 
business  man  knows,  that  to-day  the  circulation  of  the 
banks  may  be  twenty  millions,  and  that  money  may 
be  so  plenty  in  the  market  as  to  be  worth  only  five 
per  cent,  a  year;  and  that  a  year  from  to-day,  the 
circulation  remaining  the  same,  money  may  be  so 
scarce  as  to  command  eight  or  ten  per  cent,  per  an- 
num." But  every  business  man  does  not  appear  to 
know  that  the  natural  and  regular  consequence  of  a 
large  addition  of  paper  money  to  the  circulation  is 
always  to  render  money  plentiful  and  cheap  at  first. 
This  plentiful  and  cheap  supply  of  money  produces  an 
artificial  rise  in  the  prices  of  property  of  every  kind. 
So  that  within  a  year,  unless  the  amount  of  money 
in  circulation  is  still  farther  increased,  so  much  more 
will  be  required  to  transact  the  same  business,  at  the 
inflated  scale  of  prices,  that  money  will  be  in  demand 
at  eight  or  ten  per  cent,  per  annum. 

The  increase  of  the  money  in  circulation  in  any 
country  will  increase   the  prices,  without  increasing 


iV 


,■■  ^1 


52 


the  real  value  of  commodities,  if  considered  without  ref- 
erence to  its  foreign  commerce.  The  celebrated  writer, 
John  Stuart  Mill,  in  his  "  Principles  of  Political  Econo- 
my," says, "  The  uses  of  money  are  in  no  respect  pro- 
moted by  increasing  the  quantity  which  exists  and 
circulates  in  a  country,  the  services  which  it  performs 
being  as  well  rendered  by  a  small  as  by  a  larger  aggre- 
gate amount.  Two  million  quarters  of  wheat  will  not 
feed  so  many  persons  as  four  millions ;  but  two  millions 
of  pounds  sterling  will  carry  on  as  much  traffic,  will  buy 
and  sell  as  many  commodities,  as  four  millions,  though 
at  lower  nominal  prices."  For  example,  suppose  fifty 
millions  of  dollars  to  represent  the  amount  of  the  circu- 
lating money  in  a  country,  and  that  flour  is  worth  five 
dollars  a  barrel,  iron  twenty  dollars  a  ton,  and  other 
articles  in  proportion.  If  the  amount  of  circulating 
money  should  be  increased  to  one  hundred  millions  of 
dollars,  this  last  named  sum  would  represent  and  per- 
form the  business,  which  was  before  represented  and 
performed  by  the  fifty  millions.  And  the  barrel  of 
flour  that  before  was  valued  at  five  dollars,  all  other 
circumstances  remaining  the  same,  may  then  be  worth 
ten  dollars.  It  would  therefore  appear  that  flour  had 
doubled  in  value.  But  it  is  not  so.  It  is  only  a  nomi- 
nal increase  of  value.  For  now  that  the  barrel  of  flour 
is  worth  ten  dollars,  that  sum  of  money  will  not  pro- 
duce more  of  other  commodities  than  five  dollars  did 
before,  as  all  other  commodities  will  have  risen  in  about 
the  same  proportion.  With  fifty  millions  of  circulating 
money,  the  barrel  of  flour  represented  and  was  worth 
five  dollars.  With  one  hundred  millions  of  circulating 
money,  it  represents  and  is  worth  ten  dollars.  And  all 
other  articles  are  represented  in  the  same  proportion  in 


■'•FT^.'^'T-'^ 


— r~    ..rr-i.,.''r7^-r7?fr',-s^-,;i:;»T^f wTvr^j-^KV"' 


53 


these  two  conditions  of  the  amount  of  money  in  circu- 
lation. In  the  one  condition,  no  more  of  any  article 
could  be  purchased  for  one  dollar,  than  in  the  other 
condition  could  be  purchased  for  the  half  of  it.  This 
explains  what  is  meant  by  the  statement  which  seems 
so  difficult  of  comprehension  to  some  persons,  that  to 
those  who  live  on  salaries  or  wages,  the  effect  of  an 
artificial  inflation  of  prices,  by  an  increase  of  the  amount 
of  paper  money  in  circulation,  is  to  diminish  the  quan- 
tity of  the  necessities  and  conveniences  which  they  can 
provide  for  their  families.  So  that  it  may  with  propri- 
ety be  said,  that  one  dollar  a  day  is  not  better  wages 
for  a  laboring  man,  than  fifty  cents  a  day,  unless  it  will 
buy  more  of  those  necessities  and  conveniences. 

An  increase  of  the  amount  of  monev  in  circulation, 
and  the  consequent  increase  of  prices,  are  always  grad- 
ual. The  circumstances  that  regulate  the  current  or 
market  prices  are  so  various,  that  the  true  cause  of  any 
change  cannot  always  be  traced  at  once.  Supply  and 
demand  regulate  prices  when  the  amount  of  money  in 
circulation  is  uniform.  But  supply  and  demand  come 
through  so  many  channels  for  articles  in  general  use, 
that  the  extent  of  either  is  not  always  readily  per- 
ceived. Any  increase  of  prices  is  most  commonly 
ascribed  to  an  increase  of  demand,  as  compared  with 
supply,  that  being  the  usual  cause  of  the  rise  in  the 
prices.  When  prices  rise  in  conseque/ice  of  an  addi- 
tion to  the  amount  of  money  in  circulation;  it  is  be- 
cause the  increased  supply  of  money  furnishes  addi- 
tional power  to  purchase  until  it  produces  a  demand 
that  will  carry  all  articles  up  in  price  to  their  fair 
value,  in  proportion  to  the  extent  of  the  increase  of 
money  in  circulation. 


.  ■! 


■::r 


■ii 


1^?  'll 


1,1 


54 


yi 


■r,.  :r 


III     J 


The  effect  of  an  increase  of  the  amount  of  money  in 
circulation  on  the  price  of  any  given  article  may  be, 
after  a  time,  counteracted  or  qualified  by  an  increase 
of  its  supply,  or  by  a  reduction  of  the  demand  for  it. 
For  example,  iron,  which  has  been  worth  twenty  dol- 
lars a  ton,  should  be  worth  about  forty  dollars,  if  the 
amount  of  the  circulation  has  been  doubled,  all  other 
circumstances  remaining  the  same.    But  the  foreign 
manufacturer,  instead  of  obtaining  an  increased  price, 
may  prefer  to  increase  the  supply  of  his  iron.    Twenty 
dollars  a  ton  is,  perhaps,  more  than  he  can  realize  for  it 
at  home,  where  the  greater  part  of  the  iron  he  produces 
is  sold.     Therefore,  instead  of  getting  a  higher  price  for 
a  small  quantity,  as  the  Dutch  did  formerly,  for  their 
spices,  he  may  prefer  to  increase  the  quantity  of  iron. 
He  may  continue  to  increase  the  quantity  so  long  as  it 
will  sell  for  twenty  dollars.   In  such  a  case,  the  increase 
of  the  amount  of  money  in  circulation  increases  the  sup- 
ply of  iron  from  abroad,  instead  of  increasing  the  price 
of  it.     But  how  is  it  with  the  manufacturer  of  iron  at 
home?    What  is  the   effect  on  his  business?    He  is 
differently  situated.     Twenty  dollars  a  ton  was  a  re- 
munerating and  satisfactory  price  to  him  before  the 
amount  of  money  in  circulation  was  increased.     But 
with  the  increase  of  money,  the  prices  of  all  the  ele- 
ments that  make  up  the  cost  of  his  iron  have  increased, 
and  nearly  forty  dollars  a  ton  would  now  be  required 
to  remunerate  him  for  it  as  well  as  twenty  dollars  did 
before.    He  must  therefore  stop  his  works,  and  leave 
the  foreign  manufacturer  to  supply  the  whole  quantity 
of  iron  needed  for  the  consumption  of  the  country. 
The  price  of  the  elements  that  make  up  the  cost  of  the 
foreign  iron  remain  the  same  as  before.    The  paper 


55 


money  for  which  it  is  sold,  being  redeemable  in  specie, 
the  proceeds  of  the  iron  can  be  returned  in  gold  or 
silver.  The  home  manufacturer,  too,  could  exchange 
the  proceeds  of  his  iron  for  gold  or  silver ;  but  it  would 
be  worth  no  more  to  him  than  the  paper  money, 
unless  he  wished  to  send  it  abroad  to  purchase  and 
import  foreign  iron  for  the  supply  of  his  customers,  in- 
stead of  manufacturing  it.  But  this  benefit  of  a  cheap 
supply  of  iron  will  not  be  of  long  continuance.  The  in- 
creased demand  occasioned  by  stopping  the  manufac- 
ture at  home,  raises  the  price  abroad,  and  the  foreign 
manufacturers,  perceiving  that  they  have  the  market  to 
themselves,  gradually  increase  their  prices,  and  realize 
extravagant  profits.  Thus  the  actual  effect  produced 
by  increasing  the  amount  of  money  in  circulation,  and 
thereby  enhancing  the  prices  of  all  articles  of  sale  and 
commerce,  is  to  increase  the  profits  on  foreign  importa- 
tions, and  the  inducements  to  extend  them ;  while  at  the 
same  time,  it  injures  the  domestic  manufacturer,  and  op- 
presses the  industry  of  the  country,  by  increasing  the 
expense  of  the  labor,  and  of  the  cobu  of  manufacturing. 
To  suppose  the  amount  of  the  circulation  f)f  a  coun- 
try increased  from  fifty  millions  to  one  hundred  mil- 
lions, is  apparently,  to  suppose  an  extreme  case.  But 
additions  of  twenty  to  fifty  per  cent,  to  the  amount  of 
paper  money  in  circulation,  not  unfrequently  occur, 
when  the  currency  consists  of  paper  payable  on  de- 
mand in  specie,  as  it  does  in  the  United  States.  It  is 
not  usually  an  immediate  increase.  It  may  take  a 
year  or  more  to  effect  it.  But  it  sometimes  happens 
within  a  period  of  a  few  months.  The  amount  of  the 
loans  of  the  Bank  of  the  United  States  on  the  1st  of  Sep- 
tember, 1834,  was  $47,059,498,  and  on  the  1st  of  June, 


't1 


i! 


Ih:  i 


v  -.  a 


56 


1835,  was  $63,649,646,  being  an  increase  of  more  than 
thirty-five  per  cent,  in  the  short  period  of  nine  months. 
The  increase  in  the  local  banks,  during  the  same  period, 
was  probably  as  great.  The  effect  of  the  increase  of 
paper  money  at  that  time  upon  prices,  and  the  conse- 
quences resulting  from  it,  which  occurred  a  year  or  two 
later,  will  not  soon  be  forgotten.  The  published  state- 
ments of  all  the  banks  in  the  United  States,  show  that 
their  bills  in  circulation  had  been  increased  from  fifty- 
eight  millions  in  1843,  to  about  two  hundred  and 
four  millions  in  1854;  and  that  at  this  last  period, 
there  was  less  than  sixty  millions  of  specie  in  all  the 
banks  of  the  country. 

The  state  of  trade  in  any  country  may  be  such  that 
specie  flows  into  it.  That  is,  prices  are  low,  rendering  it 
profitable  to  export  merchandise,  and  diminishing  the  in- 
ducements to  import  it.  There  is  then  a  good  demand 
for  the  products  of  the  industry  of  the  country  for  con- 
sumption and  for  exportation,  and  more  or  less  specie 
is  imported  in  return  for  the  merchandise  exported. 
But  as  the  specie  is  not  used  for  currency,  it  accumu- 
lates in  the  banks,  forming  the  basis  of  an  increase  of 
the  issues  of  their  bills,  which  are  put  in  circulation  by 
loaning  them  freely.  This  facility  in  obtaining  these 
loans  stimulates  the  merchants  and  traders  to  increase 
their  purchases  of  merchandise  and  other  property. 
As  the  business  of  trading  increases,  prices  rise,  and  a 
larger  amount  of  money  is  needed.  The  banks  are 
enabled  to  add  still  more  to  their  loans,  and  to  keep 
still  more  of  their  bills  in  circulation.  Borrowing 
money  with  facility,  traders  are  less  anxious  to  realize 
the  money  for  their  merchandise  by  selling  it. .  They 
prefer  to  pay  their  debts  by  creating  new  ones  in  the 


57 


hze 
ley 
the 


shape  of  bank  loans,  in  the  expectation  of  obtaining 
higher  prices  at  some  future  time  for  their  merchan- 
dise. Many  become  speculators,  and,  buoyed  up  by 
loans  at  the  banks,  are  disposed  to  purchase  the  mer- 
chandise of  others,  rather  than  to  sell  their  own,  ex- 
pecting thereby  to  force  the  consumers  to  pay  them 
higher  prices.  The  advance  in  prices  at  first  encour- 
ages the  manufacturer  to  increase  his  work.  But  he 
soon  finds  that  the  prices  of  all  the  materials  which 
he  uses  in  his  manufacture  have  increased  in  propor- 
tion, and  therefore,  that  he  gets  no  more  profit  than 
before.  But  not  so  with  the  importer  of  foreign 
manufactures.  His  merchandise  costs  him  no  more 
than  it  did  before.  The  high  prices  will  therefore 
induce  him  to  increase  largely  the  amount  of  his 
importations.  Those  high  prices  will,  in  the  end, 
diminish  the  consumption  of  many  articles,  by  raising 
their  value  beyond  the  reach  of  the  many,  who  live 
on  salaries  and  wages.  Large  stocks  of  merchandise 
will  thus  be  accumulated.  At  the  same  time,  the 
indebtedness  of  the  merchants  to  the  banks  has  in- 
creased. The  amount  of  paper  money,  that  is  to  say, 
the  indebtedness  of  the  banks  to  the  community,  will 
have  been  most  dangerously  enlarged.  This  specula- 
tive inflation  continues  and  augments,  until  at  last, 
the  conditions  of  trade  are  entirely  reversed.  Prices 
being  high,  it  is  profitable  to  import  merchandise,  and 
the  inducements  to  export  it  no  longer  exist.  More 
or  less  specie,  is  therefore  exported  in  return  for  im- 
ported commodities.  This  export  of  specie  may  con- 
tinue for  some  time  before  its  effects  on  the  condi- 
tion of  the  currency  become  serious.  But  all  the  coin 
that  can  be  spared  will,  in  time,  be   sent  away,  and 

8 


''} 


H 


V 
}  '■ 


1,1 


58 


I   T 


m^ 


the  demand  will  then  come  upon  that  which  is  ab- 
solutely necessary  to  the  banks  to  sustain  the  circu- 
lation of  their  paper.  All  the  resources  of  the  banks 
will  then  be  required  to  meet  the  demands  against 
them.  Those  resources  are  the  debts  due  from  the 
merchants  and  traders,  and  they  must  be  paid.  But 
to  pay  them,  these  merchants  and  traders  must  either 
sell  their  merchandise,  or  borrow  money  outside  of  the 
banks,  on  the  best  terms  they  can.  ., 

Whether  the  currency  of  the  country  consists  en- 
tirely of  the  precious  metals,  or  is  a  mixed  currency, 
consisting  in  part  of  paper  money  payable  in  specie 
on  demand,  under  the  same  circumstances  the  same 
effect  would  be  produced  by  any  great  increase  or 
reduction  of  the  amount  of  money  in  circulation. 
But  there  would  be  a  great  difference  in  the  inten- 
sity of  the  crisis  in  these  two  cases.  Suppose,  for  in- 
stance, the  whole  amount  of  the  currency  to  be  two 
hundred  millions  of  coined  money.  The  gradual  ab- 
straction of  twenty  millions  for  exportation  would  pro- 
duce effects  that  might  not  be  greatly  perceptible. 
But,  if  the  currency  consisted  of  that  amount  of  bank 
paper  convertible  on  demand  in  specie,  and  the  whole 
amount  of  specie  to  support  this  circulation  did  not 
exceed  sixty  millions  of  dollars,  the  abstraction  of 
twenty  millions  of  coin  to  export,  if  the  whole  amount 
of  the  currency  was  reduced  in  any  thing  like  the 
same  proportion,  would  produce  a  reduction  in  the 
prices  of  property  of  all  kinds  that  would  render 
bankrupt  a  large  portion  of  the  business  community. 
Money  would  become  so  scarce,  and  the  value  of 
property  would  be  so  much  reduced,  tb  .t  many  debt- 
ors would   not   be    able  to  obtain  money  upon  any 


59 


terms  to  pay  their  debts.  Many  commodities  would 
be  exported  to  furnish  funds  to  diminish  the  foreign 
indebtedness.  For,  until  that  indebtedness  was  settled 
in  some  way,  either  by  the  shipments  of  specie,  or 
of  merchandise,  or  by  the  failure  of  the  debtors,  the 
demand  for  specie  and  the  contraction  of  the  currency 
would  continue. 

Of  all  the  articles  that  supply  the  wants  of  a 
well-furnished  community,  the  proportion  (derived  from 
foreign  commerce  is  small.  But  in  the  United  States, 
the  foreign  commerce,  small  as  it  is  in  comparison 
with  the  internal  trade,  now  regulates  and  controls, 
through  its  effects  upon  the  currency  and  the  banks, 
the  prices  of  all  articles  throughout  the  whole  coun- 
try. The  object  of  trade  and  commerce  is  to  supply 
the  various  necessaries,  conveniences,  and  luxuries  of 
life;  and,  whatever  can  be  obtained  cheaper  from 
abroad,  will  be  procured  there.  If  the  cost  of  pro- 
duction at  home  is  enhanced  by  an  increase  of  cur- 
rency, the  quantity  of  articles  that  can  be  obtained 
cheaper  from  abroad  will  be  increased,  and  the  quan- 
tity of  articles  that  can  be  produced  cheaper  at  home 
will  be  diminished.  This  will  continue  and  increase, 
until  it  creates  such  a  demand  for  the  precious  metals 
to  export  for  the  payment  of  imported  merchandise, 
as  to  diminish  the  supply  of  the  circulating  medium 
of  the  country.  Assuming  the  exports  of  the  country 
to  be  equal  in  value  to  two  hundred  millions  of  dol- 
lars, (including  the  expenses  of  transportation  or  freight 
when  in  the  vessels  of  the  country,  and  the  profits  on 
the  sales  abroad,)  this  two  hundred  millions  of  dollars 
is  the  amount  of  foreign  productions  that  can  be 
imported   with   benefit  to   the   country.    Any  extent 


Or 


:li 


I',  t 


i- 


«i 


R 


60 


of  importations  beyond  it  makes  an  indebtedness  in 
specie,  which  must  create  a  demand  for  the  precious 
metals  of  the  country  to  export.  The  intensity  of  that 
demand  will  control  the  amount  of  the  currency,  and 
the  prices  of  all  the  property  of  the  country,  which 
amounts  to  many  thousands  of  millions  of  dollars. 

There  is  a  distinction  between  money  in  actual  cir- 
culation from  hand  to  hand,  which  is  usually  denoted 
as  "currency"  and  wealth  that  is  not  circulating,  but 
is  locked  up  in  the  possession  of  individuals,  in  various 
shapes  of  valuable  securities,  or  deposits  in  banks,  or 
even  in  actual  coin,  which  is  denoted  as  " capital"  It 
is  only  the  money  in  circulation  that  affects  prices. 
Hence  it  may  and  does  often  happen,  that  there  is 
an  abundance  of  ^'capital"  in  the  country,  while  the 
money  in  circulation,  or  ^^  currency,"  is  not  sufficient 
for  the  wants  of  the  community.  Much  of  this  capi- 
tal can  at  any  time  be  changed  into  currency,  by  using 
it  for  the  purchase  of  merchandise  or  other  property. 
During  any  great  money  pressure,  or  scarcity,  there  are 
usually  large  amounts  that  remain  quietly  on  deposit 
in  the  banks,  for  which  the  bills  of  the  banks  or  specie 
could  at  any  time  be  demanded.  This  abundance  of 
locked  up  money  or  "  capital "  will  always  exist  more 
or  less,  when,  from  any  causes,  those  who  possess  money 
are  deterred  from  investing  it  in  trade,  or  other  ad- 
venturous channels,  or  can  find  occasional  opportu- 
nities to  loan  it  at  exorbitant  rates.  When  any  such 
causes  exist,  capitalists  are  more  and  more  indisposed 
to  invest  money  in  commerce  or  manufactures,  or  pub- 
lic works,  and  they  are  more  and  more  resolute  in 
keeping  it  locked  up  in  bank  deposits,  or  valuable 
securities,   and   sometimes  in   coin,   waiting  for  some 


61 


favorable  opportunity  to  invest  it.  This  state  of  things 
may  produce  what,  at  first  sight,  seehis  an  absurdity, 
a  community  growing  more  straitened  for  money,  at 
the  very  time  when  the  property  and  wealth  in 
the  hands  of  money-lenders  and  capitalists  are  daily 
increasing. 

Nothing  can  be  more  unreasonable,  or  further  from 
the  truth,  than  the  common  statement  of  speculators 
and  money  borrowers,  that  the  amount  of  paper  money, 
which  can  be  used  as  a  substitute  for  the  coined  money 
of  a  country,  is  so  much  gain  to  the  community.  They 
argue  that  the  coined  money,  for  which  it  is  a  substi- 
tute, will  then  become  so  much  additional  capital  that 
can  be  applied  to  support  some  new  purpose  of  domes- 
tic industry.  If  the  currency  of  a  country  consisted 
wholly  of  coined  money,  and  an  addition  was  made 
to  it  of  an  amount  of  paper  money,  it  would,  to  the 
extent  of  that  addition,  increase  the  volume  of  the 
currency,  and  thus  would  occur  a  corresponding  rise 
in  the  prices  of  articles.  The  effect  of  this  would 
be  to  increase  the  importation  of  merchandise  from 
abroad,  until  a  demand  for  specie  were  produced. 
Then  the  coined  money  would  be  gradually  carried 
off  to  pay  for  the  increase  of  imported  merchandise, 
to  the  extent  of  the  addition  of  paper  money  that 
had  been  made  to  the  currency.  If  the  coined  money 
of  the  country  is  not  needed  at  home  for  currency, 
in  consequence  of  paper  money  being  substituted  for 
it,  it  can,  in  the  existing  condition  of  things,  only  be 
used  to  injure  the  labor  and  industry  of  the  country, 
by  being  exported  to  pay  for  importations  of  the  prod- 
ucts of  foreign  industry.  For  the  addition  of  paper 
money  to  the  currency  only  creates  a  corresponding 


•:'■;( 


n% 


II  < 


62 


advance  of  prices,  and,  consequently,  an  increase  of 
foreign  importations. 

If  the  precious  metals  are  not  used  for  currency, 
they  will  accumulate  in  the  vaults  of  the  banks,  when 
they  are  not  wanted  for  export.  There  they  will  form 
the  basis  of  a  greater  issue  of  paper  money,  which 
will  further  depreciate  the  currency.  In  such  case, 
by  inflating  the  prices  of  all  articles,  they  will  give 
a  greater  impetus  to  the  import  of  foreign  commodi- 
ties. It  is  not  desirable  that  the  banks  should  hoard 
up  specie  in  their  vaults,  and  issue  for  every  dollar 
of  it  five  or  ten  times  the  amount  in  their  paper  prom- 
ises to  pay,  or,  in  amounts  placed  to  the  credit  of  in- 
dividuals as  deposits,  which  may  be  changed  at  any 
time  into  bills  for  circulation.  The  banks  have  now 
too  much  to  do  with  the  imports  and  exports  of  the 
country.  They  will  continue  to  have  this  direct  in- 
fluence upon  foreign  trade,  and  the  country  will  con- 
tinue to  be  overstocked  with  foreign  merchandise  to 
the  great  injury  of  domestic  industry,  until  the  cur- 
rency of  the  country  becomes  more  substantial,  —  un- 
til it  consists  more  of  the  precious  metals,  and  less 
of  paper  money.  When  the  precious  metals  are  used 
for  circulation,  and  the  country  has  a  sound,  substan- 
tial specie  currency,  sufficient  in  amount  for  the  pur- 
poses of  trade,  all  business,  both  foreign  and  domestic, 
will  be  regulated  on  more  just  and  more  correct  prin- 
ciples. We  shall  then  cease  to  hear  complaints  of 
the  tariff,  or  of  foreign  interference  with  native  in- 
dustry ;  and  the  banks  will  find  their  true  place,  and 
become  the  servants,  not  the  masters,  of  the  money 
and  currency  of  the  country. 

When  cotton   and   breadstuff's,  and  the   exports  of 


68 


the  country  generally,  are  sent  abroad,  and  their  pro- 
ceeds are  invested  and  returned  in  foreign  merchan- 
dise, the  surplus  productions  of  the  industry  of  the 
country  .ire  exchanged  for  the  surplus  productions 
of  the  industry  of  other  countries.  The  cotton  and 
corn  and  flour  and  manufactured  goods  of  the  United 
States,  the  iron  and  cloths  of  England,  the  wiries  and 
silks  of  continental  Europe,  and  the  teas  and  spices  of 
China  and  India,  are  interchanged.  Thus  is  created 
a  trade  between  those  different  countries  that  is  use- 
ful and  profitable  to  each  one  of  them.  If  only  500,- 
000  bales  of  cotton  are  manufactured  in  the  United 
States,  the  remaining  2,500,000  bales  of  the  cotton 
crop  would  be  valueless  without  foreign  trade.  So 
with  the  surplus  quantities  of  the  iron  and  cloths  of 
England;  they  would  be  valueless  there  without  foreign 
trade.  Therefore,  to  exchange  the  surplus  products 
of  the  industry  of  the  United  States,  which  would  be 
valueless  at  home,  for  the  surplus  products  of  Eng- 
land and  other  countries,  which,  without  a  foreign  de- 
mand, would  be  valueless  in  those  countries,  is  an  ad- 
vantageous and  profitable  trade. 

But  the  foreign  trade  is  no  longer  useful  or  profit- 
able when  it  requires  the  exportation  of  the  coined 
money  which  is  necessary  and  useful  at  home  for  cur- 
rency. When  the  importations  of  foreign  merchan- 
dise are  paid  for  otherwise  than  by  exchanging  for 
them  the  products  of  the  industry  of  our  own  coun- 
try, they  come  in  competition  with,  and  are  an  injury 
to  our  domestic  industry. 

The  very  commencement  and  origin  of  trade  and 
commerce  is  the  exchange,  which  is  made  between 
individuals  of  the  products  of  their  respective  labor. 


m 


G4 


by  which  their  various  wonts  are  supplied.  Subse- 
quently occur  the  exchanges  which  take  place  be- 
tween nations,  of  the  surplus  products  of  their  in- 
dustry. The  mechanic  in  a  country  village,  whether 
with  or  without  the  use  of  money  or  currency,  ob- 
tains the  necessary  supplies  for  his  family,  by  exchang- 
ing the  products  of  his  labor  with  his  various  neigh- 
bors. When,  instead  of  continuing  to  rely  alone  upon 
his  industry,  he  obtains  the  supplies  for  his  current 
wants  by  parting  with  his  furniture,  or  the  tools  of 
his  trade,  or  the  money  which  he  has  saved  up  and 
laid  by  in  years  of  toil,  he  is  not  more  improvident 
and  unwise  than  is  the  nation  that  exports  its  coined 
money  to  pay  for  importations  of  foreign  merchandise. 
Sickness  may  oblige  the  mechanic  to  do  this,  and  a 
deficient  harvest,  or  the  worse  evil  of  war,  may  oblige 
a  nation  to  export  its  coin  to  pay  for  the  necessary 
supply  of  breadstuff's  for  food.  But,  in  both  cases, 
they  are  vast  misfortunes. 

It  is  impossible,  under  the  present  system  of  cur- 
rency and  banking  in  the  United  States,  that  any 
large  loans  can  ever  be  negotiated  at  home.  The 
prospect,  only,  of  a  large  loan  would  at  once  produce 
a  panic  in  the  money  market.  The  banks  would 
immediately  stop  discounting,  to  be  prepared  to  pay 
back  their  deposits.  By  doing  so,  they  would  make 
money  so  scarce,  and  raise  the  rates  of  interest  so 
high,  that  the  capitalists,  who  own  those  deposits, 
could  do  better  with  their  money  than  to  take  the 
proposed  loan. 

The  moment  any  accumulation  of  money  occurs, 
it  is  deposited  in  the  banks,  and  is  used  by  them  to 
increase  their  loans.    The  majority  of  the  bank  direc- 


65 


tors  are  usually  active  business  men,  and  the  largest 
borrowers  of  the  banks.  It  is  for  their  interest  to 
prevent  large  government  loans  being  negotiated  at 
home,  ud  they  know,  in  that  case,  that  the  banks 
must  provide  the  money  by  reducing  their  loans.  By 
this  reduction  of  the  loans  of  the  banks,  money  can 
be  rendered  so  scarce  and  the  rate  of  interest  so 
high  at  home,  that  the  large  loans  can  be  obtained  on 
better  terms  abroad. 

Parties  w^ho  wish  to  negotiate  large  loans,  whether 
for  the  government  or  for  corporations,  very  naturally 
and  properly  endeavor  to  borrow  the  money  where 
they  can  get  it  cheapest.  There  are,  however,  serious 
objections  to  a  system  of  cnrrency,  which  prevents 
the  accumulation  of  uninvested  money,  and  the  power 
to  take  large  loans  at  home.  Under  the  present  sys- 
tem of  currency  united  with  banking,  an  accumula- 
tion of  unemployed  capital  cannot  occur  in  ordinary 
times.  For,  as  fast  as  money  accumulates  in  the  pos- 
session of  individuals,  it  is  deposited  in  the  banks  and 
loaned  by  them.  If  merchants  and  traders  will  not 
borrow,  brokers  and  stockjobbers  are  always  ready 
to  take  it,  and  to  give  stocks  as  security,  often  the 
stocks  which  they  buy  with  it.  As  soon,  therefore,  as 
these  deposits  accumulate,  they  are  loaned  by  the 
banks ;  and  the  more  the  banks  loan,  the  higher  prices 
will  rise,  and  consequently  new  loans  will  be  the  more 
in  demand. 

When  the  government  of  the  United  States  accumu- 
lated the  surplus  revenue  of  forty  millions  of  dollars, 
which  was  afterwards  divided  among  the  States  in 
1837,  it  was  deposited  to  the  credit  of  the  government 
in  banks,  and  by  the  banks  loaned  to  individuals  and 

9 


66 


1 1;; 


I 


corporations.  The  more  the  government  deposits  in- 
creased, the  more  the  banks  increased  their  loans,  and 
the  more  prices  rose.  The  imports,  and  consequently 
the  amount  of  the  revenue,  increased  with  the  rise  of 
prices.  At  the  same  time,  and  by  the  same  causes, 
the  uses  and  demand  foi  money,  and  the  demand  for 
specie  to  export,  were  increased.  When  the  govern- 
ment called  on  the  banks  to  pay  back  the  public  de- 
posits for  distribution  among  the  States,  it  was  im- 
possible for  them  to  do  it.  They  had  loaned  it  out 
to  parties,  who  had  invested  it  in  various  ways,  a  large 
proportion  of  it  in  government  lands.  So  large  an 
amount  could  only  be  paid  back  gradually  and  slowly, 
as  it  had  been  received  when  collected  by  the  gov- 
ernment. The  result  was,  that  before  the  last  instal- 
ment was  paid  to  the  States,  all  the  banks  throughout 
the  country  stopped  payment.  The  change  in  the 
value  of  property  then  became  so  great,  thai  many  of 
those  banks  that  had  extended  their  loans  with  the 
government  deposits,  lost  all  their  capitals,  and  were 
never  able  to  resume  again.  There  were  other  causes 
combined  at  that  time  to  increase  the  difficulty.  One 
of  them  was  the  sudden  check  upon  the  negotiation 
of  loans  abroad,  which  had,  for  some  time  previous, 
been  taken  with  great  readiness,  causing  large  importa- 
tions of  foreign  merchandise.  But  no  deficient  harvest 
in  Europe  occurred  in  1837  to  aid  the  payment  of 
that  indebtedness,  as  happened  in  1853. 

The  exports  of  the  domestic  productions  of  the 
United  States  for  the  year  ending  June  30,  1854,  in 
merchandise  amounted  to  $213,985,236,  and  in  gold 
and  silver  to  $41,197,300.  The  greater  part  of  tae 
amount  exported  in  gold  and  silver,  if  not  the  whole 


67 


of  it,  was  a  clear  loss  to  the  country,  because  the  net 
amount  of  the  importations  of  merchandise,  which 
were  $274,134,733,  could  have  been  reduced  more 
than  forty  millions  of  dollars  without  injury  or  in- 
convenience to  any  one.  The  reduction  of  the  im- 
ports of  that  year  to  the  extent  of  forty  millions, 
though  we  did  produce  in  California  that  amount  of 
gold,  would  have  furnished  to  the  manufacturing  in- 
dustry of  the  country  more  protection  than  could  pos- 
sibly be  obtained  from  the  national  government  by  any 
tariff  legislation. 

If  the  government  had  made  a  loan  in  Europe  dur- 
ing that  year  for  twenty  millions  of  dollars,  it  would, 
in  effect,  have  added  that,  or  a  greater  amount,  to 
the  importations.  For,  with  paper  money  for  cur- 
rency, there  was  no  use  for  specie  at  home,  and  the 
loan  of  twenty  millions  would  have  only  served  to 
pay  for  at  least  that  increase  of  importations.  If  there 
have  been  of  late  no  such  loans  made  by  the  govern- 
ment, there  have  been  many  made  by.railrpad  com- 
panies and  other  corporations  to  a  very  large  amount. 
The  great  increase  in  the  importations  for  the  last 
three  years,  and  the  excess  of  them  over  the  exports 
of  the  same  years  were  caused,  in  part,  by  those  loans, 
and  the  results  are  evidence  of  the  effect  produced 
by  increasing  the  amount  of  imports.  In  the  latter 
part  of  the  year  1853,  it  became  difficult  to  negotiate 
corporation  loans  abroad,  and  consequently,  the  export 
of  specie  was  increased.  Had  it  not  been  for  the  de- 
ficient harvest  in  Europe,  which  caused  a  great  de- 
mand for,  and  a  great  increase  in  the  export  of  bread- 
stuffs  in  the  autumn  and  winter  of  1853,  the  demand 
for   specie   would  have  been   so  intense   as  to   have 


68 


caused  much  distress  in  the  United  States.  The  in- 
debtedness, arising  from  the  large  importations,  was 
so  great,  that  the  immense  and  unusual  export  of 
breadstuflfs  was  paid  for  without  any  import  of  specie, 
or  even  interrupting  its  export.  As  the  amount  of 
money  in  circulation  was  not  diminished  by  the  ex- 
port of  specie,  in  consequence  of  the  creation  of  new 
banks  and  the  increased  issues  of  paper  money,  prices 
were  sustained,  and  the  excessive  importations  con- 
tinued. The  export  of  specie  was  not  diminished  un- 
til the  autumn  of  1854,  when  the  banks,  at  last,  were 
forced  to  reduce  their  loans  and  their  circulation  to  an 
extent  that  produced  much  distress  and  bankruptcy. 

The  loans  negotiated  abroad  may  have  been  con- 
venient at  the  time,  to  the  parties  who  borrowed  the 
money.  But  all  that  was  received  for  them,  and  all 
that  was  brought  into  the  country  in  consequence  of 
them,  was  an  increased  quantity  of  foreign  merchan- 
dise to  be  sold  in  competition  with  the  products  of 
our  domestic  industry.  All  that  remains  now  of  those 
loans  is  the  obligation  to  send  back  the  amount  of 
them  at  some  future  time.  In  the  interim,  we  must 
transmit  an  "  annual  tribute  "  for  the  interest  on  them. 
It  is  estimated  that  this  annual  tribute  now  amounts 
to  about  twenty  millions  of  dollars,  and  an  examina- 
tion of  the  official  tables  of  the  annual  imports  and 
exports  will  prove  this  to  be  not  far  from  the  truth. 

It  may  be  said  that  the  railroads  exist,  which  those 
loans  assisted  to  build.  But  those  roads  would  have 
been  as  effectually  and  surely  built  without  those 
loans.  No  money  was  imported  for  the  loans.  The 
momy  that  was  invested  in  the  roads  was  ail  furnished 
at  home,  and  so  were  the  labor  and  materials,  excepting 


69 


only  the  iron  rails.    And  there  is  iron  enough  in  the 
country  to    have  furnished  them.     The  roads  were 
partly  built,  ai^d  in  most  cases  in  actual  use,  before 
the  loans  could  be  negotiated  abroad.     The   loan  for 
the  Western  Kailroad  in  Massachusetts,  with  the  guar- 
antee of  the  State,  was  negotiated  in  England  at  five 
per  cent.,  a  lower  rate  than  would  satisfy  capitalists 
at  home  at  that  time.     This  was  a  consequence  of 
the  disturbed  state  of  the  money  market  produced  by 
the  high  prices  and  excessive  importations,  which  this 
and  similar  loans  had  assisted  to  cause,  whereby  cap- 
italists at  home,  in   the  course    of  that   year,  were 
enabled  to   get  one  or  two   per  cent,  a  month    for 
their  money.     Is  it  to  be  supposed,  that,  with  taxable 
property  in  Massachusetts,  which,  by  the  returns  of 
the  valuation  committee  of  1851,  amounts  to   nearly 
six  hundred  millions  of  dollars,  the  Western  Railroad, 
the   first  cost  of  which  was  about  seven  millions  of 
dollars,   could   not  have    been  finished  but  for  that 
loan;  and  that  the  money  to  build  it  ought  not  to 
have  been  obtained  without  going  to  England  !    Very 
large   amounts  lay  on   deposit  in  the  banks  at  that 
time,  to  the  credit  of  our  money-lenders,  capitalists, 
and  merchants.    With  a   substantial   and  sound  cur- 
rency, every  dollar  of  that  loan,  and  of  all  the  loans 
cf  the  national  government  for  the  last  twenty  years, 
would  have  been  readily  taken  by  our  own  capitalists. 
But  with  the  constant  fluctuations  of  currency  occa- 
sioned   by  the   comparatively  unrestricted   power  to 
issue  paper  money,  every  year  presents  the  capitalists 
and  money-lenders  of  the  country  with  opportunities 
to  loan  money  at  much  higher  rates,  and  often  to  get 
double  the  legal  interest,  or  even  more  for  it.    The 


70 


■i'  ■  ■ 


parties  in  England  who  took  that  loan,  had  so  little 
confidence  in  the  paper  money  of  our  currency  that 
they  required  the  amount  of  the  loan  to  be  expressed 
in  the  currency  of  Great  Britain,  and  the  principal 
and  interest  to  be  paid  in  London  in  the  currency  of 
Great  Britain. 

At  the  worst  of  times,  there  is  always  sufficient 
money  for  everybody  who  needs  it  to  pay  their 
debts,  if  they  will  give  enough  for  it,  and  can  give 
satisfactory  security.  But  when  the  owners  of  money 
can  make  so  profitable  a  use  of  it  as  to  loan  it  at 
one  per  cent,  a  month,  or  more,  the  banks  must  be 
prepared  to  meet  the  demand  for  it,  by  obliging  their 
customers,  to  whom  they  have  loaned  it,  to  pay  it 
back.  To  do  this,  those  customers  are  often  obliged 
to  borrow  it  at  any  exorbitant  rate  of  interest  that 
may  be  required. 

It  may  be  for  the  pecuniary  benefit  of  a  mere  pos- 
sessor of  accumulated  capital,  that  the  whole  credit  and 
enterprise  and  industry  of  the  country  should  be  at  the 
mercy  of  a  "cheap  currency,"  which  admits  of  such 
frequent  convulsions  and  fluctuations  as  may  enable 
him  to  obtain  exorbitant  profits  on  his  capital.  But 
it  is  a  remarkable  circumstance,  that  an  intelligent, 
commercial,  and  manufacturing  community,  with  ex- 
tensive resources,  and  with  abundance  of  the  precious 
metals,  which  their  enterprise  causes  continually  to 
flow  in  upon  them,  should  cherish  a  system  of  cur- 
rency that  forces  those  precious  metals  to  be  used  for 
their  injury,  instead  of  being  used  as  currency  for  their 
advantage  and  benefit.  Most  of  the  gold  that  has 
been  brought  into  New  York  by  the  steamers  from 
California,  is  almost  immediately  transferred  to  the 


71 


steamers  for  England,  because  it  is  more  valuable  for 
remittance  to  Europe,  where  it  is  used  for  currency, 
than  for  any  purpose  in  the  United  States,  where 
paper  money  for  currency  is  preferred. 


Advantages  of  the  Currmcy  of  the  Precious  Metals. 


It  has. 


the 


outset,  been  remarked  that  the  ser- 
vice which  is  rendered  by  the  precious  metals  as  a 
just  standard  of  the  value  of  property,  can  be  rendered 
by  nothing  else  with  so  much  exactness  and  justice 
and  convenience;  that  they  are  the  only  materials 
that  can  furnish  a  sound  and  substantial  currency  of 
unifonn  value.  Whenever  they  are  used  for  the  cur- 
rency of  a  country,  the  natural  laws  of  trade  wall  al- 
ways regulate  the  quantity  of  them ;  and  will  dispose 
of  any  excess  of  them,  without  aid  from  legislation, 
and  without  inconvenience  to  the  community.  If  the 
gold  from  California  were  used  for  currency,  when  the 
quantity  in  the  country  at  any  time  became  exces- 
sive, the  same  effects  would  be  produced  that  were 
observed  in  Spain  after  the  conquest  of  Mexico  and 
Peru.  The  laws  of  commerce  would  now,  as  then,  dis- 
tribute the  excess  through  other  countries. 

There  would  be  no  objection  to  sending  the  precious 
metals  away,  if  the  country  at  any  time  possessed  as 
much  of  them  as  could  be  advantageously  used.  For 
the  excess  of  them  may  then  be,  like  the  excess  of 
breadstuffs  or  cotton,  of  more  value  to  export.  But 
so  long  as  a  valuable  use  can  be  made  of  them  at 
home  to  furnish  a  sound  currency,  it  is  a  clear  loss  to 
exchange  them  for  the  products  of  the  labor  of  other 


im 


: 


'■I 


'»    :-« 


lP.t 


1' 


72 


countries,  to  be  brought  home  to  compete  with  the 
products  of  the  labor  of  our  own  country.  There  is  one 
respect  in  which  an  excess  of  the  precious  metals  in 
the  country  differs  very  materially  from  an  excess  of 
cotton,  or  of  any  other  commodity.  It  is  that  a  sur- 
plus of  gold  and  silver  may  be  laid  by  and  reserved 
for  use  at  any  future  time  without  expense  or  loss; 
whereas,  most  other  commodities  are  injured  or  de- 
stroyed by  time,  and  the  bulk  of  many  of  them  ren- 
ders the  care  .and  expense  of  protecting  them  for  a 
long  period  equal  to  their  value. 

Gold  and  silver  cannot  be  considered  an  expensive 
currency  in  consequence  of  their  waste  or  wear.  It 
has  been  proved  by  careful  experiments,  that  the  loss, 
when  in  use  for  currency,  by  friction  or  wear,  is  less 
than  half  of  one  per  cent,  a  year  on  silver,  and  does 
not  exceed  a  half  of  one  per  cent,  in  ten  years  on 
gold. 

The  amount  of  money  required  to  transact  the 
business  of  a  community,  for  which  paper  money  can 
be  substituted,  is  much  less  than  is  usually  supposed 
by  those  who  have  not  considered  the  subject.  Finan- 
cial writers  variously  calculate  the  whole  amount  re- 
quired in  an  active  business  community,  at  sums  vary- 
ing between  ten  and  fifteen  dollars  a  head  for  the 
population.  With  a  mixed  currency,  consisting  only 
in  part  of  paper  money,  still  less  would  be  required. 
Ten  dollars  a  head  would  probably  be  a  large  esti- 
mate for  the  amount  of  paper  that  could  be  substituted 
for  coined  money  without  greatly  depreciating  the 
currency.  The  amount  of  paper  circulation  in  Eng- 
land, Scotland,  and  Ireland,  is  less  than  forty  millions 
sterling,  equal  to  nearly  thirty  shillings  sterling,  or 


73 


little  more  than  seven  dollars  a  head  for  the  population. 
In  the  State  of  New  York,  containing  as  active  a  trad- 
ing and  commercial  community  as  can  be  found  in 
any  part  of  the  world,  all  the  bank-notes  are  supplied 
by  tlie  State,  and  registered  and  countersigned  by  a 
State  officer.  No  bank,  whether  it  be  incorporated  or 
organized  under  the  general  law,  is  allowed  to  issue 
any  other  notes  for  circulation.  According  to  the  offi- 
cial returns  on  the  30th  of  September,  1854,  the  whole 
amount  of  such  notes  furnished  to  incorporated  banks 
was  $19,300,963,  and  to  banks  organized  under  the 
general  banking  law,  $24,661,572,  making  together 
$43,962,535;  or  about  twelve  dollars  a  head,  for  the 
population  of  the  State,  including  the  amounts  held  by 
the  banks,  and  therefore  not  in  circulation.  There  is 
probably  no  community  in  the  world  where  paper 
money  is  so  freely  used  as  in  the  State  of  Massachu- 
setts. Each  one  of  its  hundred  and  sixty-eight  banks 
can  have  printed  and  ready  for  use  as  many  notes  as 
they  please.  The  law  allows  them  to  be  circulated  to 
the  extent  of  one  quarter  more  than  their  capital,  but 
attaches  no  penalty  for  exceeding  that  amount.  The 
capital  of  the  banks  of  Massachusetts  exceeds  fifty-six 
millions  of  dollars,  which  would  allow  an  aggregate 
circulation  of  more  than  seventy  millions  of  dollars. 
Some  of  the  banks  often  exceed  their  proportion,  but 
no  notice  has  been  taken  of  it,  when  the  published 
returns  have  shown  any  of  them  to  have  exceeded 
the  lawful  limit  of  circulation.  It  appears  by  the  an- 
nual official  return  for  1854,  that  there  are  near- 
ly twenty-five  millions  of  the  notes  of  the  banks  of 
Massjichusetts  in  circulation.  A  large  amount,  how- 
ever, of  each  others'  notes  is  returned  as  held  by  the 

10 


mm 

m 


74 


banks  themselves.  Moreover,  there  is  always  a  large 
amount  of  notes  issued  by  banks  in  the  country,  in- 
stead of  checks,  which  do  not  really  become  general 
circulation,  being  merely  transmitted  for  payments  in 
large  sums,  instead  of  a  check  or  draft,  to  gain  the 
advantage  of  a  few  days  in  interest,  and  they  are  im- 
mediately sent  into  the  Suffolk  or  some  other  bank  in 
Boston,  which  acts  as  the  agent  of  the  country  bank. 
There  are,  likewise,  large  amounts  of  bills  at  these 
agency  banks,  in  Boston,  which  have  been  redeemed, 
but  not  yet  sent  back  to  the  country  banks  taat  issued 
them,  and  must  therefore  appear  in  the  returns  as  cir- 
culation. Making  these  allowances,  the  whole  amount 
of  bills  actually  circulating  among  the  people  in  Mas- 
sachusetts, does  not  probably  exceed  twelve  or  fifteen 
millions  of  dollars,  or  about  from  twelve  to  fifteen 
dollars  a  head  for  the  whole  population  of  the  com- 
monwealth. This  conforms  very  nearly  with  the  issues 
of  bank  paper  in  the  State  of  New  York.  If  the 
actual  amount  of  paper  circulating  in  Massachusetts 
amounts  to  fifteen  millions  of  dollars,  since  checks  and 
drafts  could  be  advantageously  substituted  for  many 
of  the  purposes  for  which  bank-bills  are  now  used,  it 
would  not  require  more  than  ten  millions  of  coined 
money,  less  than  the  product  of  California  in  three 
months,  to  supply  a  soand,  uniform,  and  substantial 
currency  in  its  place.  -   . 

When  stated  in  the  aggregate,  ten  millions  of  dol- 
lars seems  to  be  a  large  sum;  but  so  the  aggreg/^tes 
of  all  articles  of  general  use  appear.  The  number  of 
barrels  of  flour  consumed  in  Massachusetts  in  a  year, 
seems  enormous  to  one  who  has  never  reflected  upon 
it.  If  they  could  be  seen  piled  together  in  a  mass, 
they  would  look  as  if  there  could  not  be  found  store- 


76 


ki- 
tes 
of 
jar, 
Ion 

re- 


houses in  the  commonwealth  to  contain  them.  Ten 
millions  of  dollars  is  only  about  ten  dollars  a  head  for 
the  population,  and  is  less  than  two  per  cent,  of  the 
amount  of  taxable  property  in  the  State,  as  returned 
by  the  last  valuation  committee,  the  amount  of  which 
was  nearly  six  hundred  millions  of  dollars;  which  esti- 
mates, being  made  for  taxation,  are  known  to  be  a 
low  valuation.  When  the  aggregate  amount  of  the 
industry  and  of  the  property  in  Massachusetts  is 
considered,  the  value  of  which  must  be  measured  by 
the  money  or  currency  in  use,  whatever  it  may  be, 
the  amount  of  currency  required  to  perform  so  im- 
portant a  service  seems  small  in  the  comparison. 
Every  one  has  a  right  to  claim  that  the  money  which 
measures  that  value,  shall  be  of  a  character  to  perform 
the  service  in  the  most  unvcarying  and  the  most  exact 
manner ;  and,  above  all  things,  that  it  shall  be  as  near 
an  approach  as  is  possible  at  all  times  to  a  just  measure. 

What  would  be  the  cost  to  Massachusetts  of  ten 
millions  of  the  precious  metals  to  use  for  currency, 
instead  of  paper  money  ?  If  the  $41,197,300  of  gold 
and  silver  that  were  exported  from  the  United  States, 
during  the  single  year  ending  in  June,  1854,  had 
remained  in  the  country,  at  least  one  tenth  part  of 
the  amount  would  have  rightly  belonged  to  Massa- 
chusetts with  her  extensive  commerce  and  manufac- 
tures. This  would  have  supplied  nearly  one  half  of 
the  amount  required  in  a  single  year.  To  the  indus- 
try of  Massachusetts,  it  would  have  been  worth  at  the 
least,  as  much  more,  by  the  protection  it  would  have 
given  to  her  manufactures  against  foreign  competition, 
by  lessening,  to  that  extent,  the  amounts  of  foreign  im- 
portations, which  it  was  sent  abroad  to  pay  for. 

Again,  let  it  be  remembered  that  coined  money  is 


76 


'I.  ■ 


fi 


ii 


r.i 


not  consumed  by  use,  like  flour  or  wines  or  silks,  and 
many  other  commodities.  Once  in  the  possession  of  a 
community  that  will  use  it  for  currency,  it  remains  to 
perform  its  important  service  again  and  again,  not  only 
for  ourselves,  but  for  future  generations.  Our  manu- 
facturers, by  opposing  the  use  of  coined  money,  or  en- 
couraging the  use  of  paper  money  in  the  place  of  it,  en- 
courage the  importation  of  foreign  manufactures.  They 
then  ask  from  the  national  government  high  tariffs  to 
protect  them  against  the  evil  effects  of  the  paper 
money.  The  only  inducement  to  use  paper  money  is 
to  render  money  more  plentiful.  This  plenty  cannot 
exist  without  causing  a  rise  of  price  md  for  that 
reason  it  is  popular.  But  the  rise  of  prices  will  in- 
crease the  cost  of  domestic  productions,  and  encourage 
foreign  importations.  The  only  remedy  for  this  effect 
of  paper  money  is  a  high  tariff.  Without  it,  no  benefit 
can  be  derived  by  the  industry  of  the  country  from 
the  increased  amount  of  money  in  circulation  and 
the  high  prices  produced  by  it.  Paper  money  and  a 
high  tariff  should  go  together.  With  a  low  tariff,  a 
substantial  currency  is  indispensable  to  the  industry 
of  the  country.  With  such  a  tariff,  the  only  one  that 
can  hereafter  be  obtained,  and  with  such  a  currency 
of  real  money,  the  industry  of  the  country  will  take 
care  of  itself. 

\  With  the  large  quantities  of  gold  that  are  constant- 
ly brought  from  California  by  the  enterprise  of  the  citi- 
zens of  Massachusetts,  there  could  not  be  any  trouble 
or  inconvenience  in  supplying,  by  degrees,  the  place 
of  the  present  paper  money  with  the  precious  metals. 
To  avoid  trouble  and  inconvenience,  it  ought  to  be 
done  gradually,  by  a  law  to  prohibit  the  circulation 
of  any  notes  below  the  denomination  of  ten  dollars. 


77 


a 


te 
is. 
le 
In 


after  one  year  from  the  passage  of  the  act.  This 
would  give  the  banks  time  to  recall  the  notes  of 
smaller  denominations,  and  for  the  specie  to  be  circu- 
lated to  take  the  place  of  them. 

In  England  and  France,  the  two  greatest  commercial 
countries  of  Europe,  paper  money  can  hardly  be  said 
to  exist,  in  the  sense  in  which  it  exists  in  the  United 
States.  For  the  Bank  of  England  and  the  Bank  of 
France,  both  of  which  are  so  organized  that  those  gov- 
ernments exercise  great  influence  in  their  manage- 
ment, are  not  permitted  to  issue  bills  of  a  denomina- 
tion so  small  as  to  be  used  in  the  every-day  trans- 
actions of  retail  purchases  and  sales.  In  England,  the 
lowest  denomination  of  bills  is  five  pounds,  equal  to 
nearly  twenty-five  dollars  of  our  money;  and  in  France, 
until  recently,  the  limit  was  five  hundred  francs,  near- 
ly one  hundred  dollars  of  our  money.  The  Bank  of 
France  has,  within  a  few  years,  issued  bills  for  one 
hundred  and  two  hundred  francs,  equal  to  about  twen- 
ty and  forty  dollars.  The  smallest  denomination  of 
bank-notes  in  England  and  France  are  too  large  for 
the  common  use  of  the  people,  their  use  is  confined 
almost  entirely  to  purposes  of  trade,  or  for  transactions 
that  require  large  sums  of  money. 

Since  the  peace  of  1815,  the  government  has  been 
constantly  strengthening  the  currency  of  England, 
which  had  depreciated  during  the  war.  Specie  pay- 
ments were  resumed.  Notes  of  a  smaller  denomination 
than  five  pounds  were  abolished.  And,  when  the  Bank 
of  England  was  rechartered  in  1844,  it  was  not  in- 
trusted with  the  unrestricted  power  to  expand  and 
contract  the  currency,  by  its  issues  of  paper  money. 
Its  issue  of  paper  without  a  cash  foundation,  is  limited 
to  fourteen  millions  of  pounds  sterling,  equal  to  about 


78 


sixty-eight  millions  of  dollars,  and  it  is  required  to 
keep  that  amount  specially  invested  in  government 
stocks.  The  Bank  of  England  must  have  specie  in  its 
vaults  for  every  note  issued  for  circulation  beyond  that 
sum.  Thus  it  has  no  interest  in  extending  the  issue 
of  paper  beyond  the  fourteen  millions,  as  it  could  not 
loan  or  invest  it,  but  would  be  obliged  to  keep  the 
amount  on  hand  in  bullion  or  coin.  No  bank  organized 
since  1844,  is  allowed  to  issue  any  bills  for  circulation, 
and  a  limit  is  fixed  to  the  circulation  of  all  banks  or- 
ganized before  that  period. 

Paper  money  has  been  sometimes  used  in  times  of 
war,  for  the  purpose  of  giving  to  government  the 
control  and  use  of  the  real  money  of  a  country. 
It  exists  in  Austria  and  some  other  despotic  countries, 
where  the  governments  can  control  it,  and  where 
they  control  all  property.  But  it  is  only  in  the 
United  States,  that  communities  can  be  found  willing 
to  delegate  to  individuals  and  to  private  corporations 
the  despotic  and  sovereign  and  irresponsible  power  of 
furnishing  and  controlling  the  currency,  which  meas- 
ures the  value  of  all  the  property  of  the  country. 

It  seems  strange  that  any  community,  aware  of  the 
nature  and  the  effects  of  paper  money,  should  be  willing, 
for  any  consideration,  to  transfer  to  private  individ- 
uals, or  to  corporations,  which  are  in  fact  managed  by 
private  individuals,  the  right  to  furnish  for  the  cur- 
rency of  the  country  any  thing  but  real  metallic  money. 
It  is  true,  that  the  direct  cost  of  paper  money  is  only 
the  expense  and  the  trouble  of  the  printing  and  the 
paper ;  but  wherever  it  is  used,  it  regulates  the  price 
of  all  the  saleable  property  in  the  community.  In 
the  United  States,  paper  money  is  at  variance,  not 
only  with  the  fundamental  law,  but  with  the  policy 


79 


of  the  national  government.    All  the  eminent  states- 
men  of  the   country   have   evidently   considered   the 
system  of  paper  money  as  one  which  "was  only  to  be 
tolerated  for  a  time,  and  that  we  should,  at  some  early 
period,  come  back  to   the   constitutional  currency,  at 
least  for  general  use  among  the  people.    Mr.  Webster, 
in  a  speech  delivered  more  than  twenty   years  ago, 
said,  "Of  all  the  contrivances  for  cheating  mankind, 
none   has  been  more  effectual   than   that  which   de- 
ludes them  with    paper    money.      This  is  the  most 
effectual    of   inventions   to    fertilize    the    rich    man's 
field  with  the  sweat  of  the  poor  man's  brow."     And 
on  another  occasion  he  said,  "My  proposition  would 
be,  that  banks  should  be  restrained  from   issuing  for 
circulation  bills  or  notes  under  a  given  sum,  say  ten 
or  twenty  dollars ;  this  would  diminish  the  circulation, 
and   consequently  the   profits,   of  the   banks.     But  it 
is  of  less  importance  to  make  banks  highly  profitable 
institutions  to  the  stockholders,  than  that  they  should 
be   safe   and   useful  to  the  community."     The  use  of 
paper  money  was  long  since  discontinued  by  the  na- 
tional  government,   but  it  has  been    permitted,  and 
indirectly  protected  .and   sanctioned,  by  most  of  the 
State  governments,  though  it  has  never  been  directly 
recognized  or  legalized  by  any  of  them  as  real  money. 
Paper  money  is  an  excrescence  which  has  grown  np 
illegitimately  on  the  body  politic ;  but,  as  it  is  based 
on  false  principles,  it  cannot  be  expected  to  endure. 
Either    its  evils  will   continue  to  augment   until  an 
enlightened  public  will   no  longer  bear  them,  or,  an 
intelligent,  judicious,  and  gradual  change  to   a  more 
substantial,  and  to  a  more  just  system  will  be  intro- 
duced.    By  the  report  of  the  Secretary  of  the  Treas- 
ury of  the  United  States  to  Congress,  of  the  condition 


IN' 


hi''' 

t'l!-: 


I  11 


80 


of  the  State  Banks,  dated  May  6th,  1854,  their  circula- 
tion was  $204,689,207.  In  an  estimate  for  November 
of  the  same  year,^  the  circulation  is  $171,417,000. 
Showing  a  reduction  of  more  than  thirtv-three  mill- 
ions,  which  fully  accounts  for  some  portion  of  the 
recent  scarcity  of  money  and  commercial  distress. 

1  Number  of  banks,  bank  capital,  bank  circulation,  and  specie  of  each  State,  Novem- 
ber, IS&i.    From  the  Boston  Post  of  February  15, 1855. 


State.  No.  of  Banks. 

Maine 67 

New  Hampshire    .    .    88 
Vermont    .    .     . 
Massachusetts   .    . 
Rhode  Island  .    . 
Connecticut .    .    . 


.  41 
168 
.  87 

65 
280 

30 
.  55 
.     9 

26 
.     5 

55 
.  27 

20 

.  18 

3 

.  25 

41 

.  33 

8 

.     5 

1 

.     6 

58 
.  33 
1 
Wisconsin 22 

Total  .... 

"    April,  1854, 


New  York .... 
New  Jersey  .    .    . 
Pennsylvania .     .    . 
Delaware  .    .     .    . 
Maryland      .    .    . 
District  of  Columbia 
Virginia  .... 
North  Carolina    .    . 
South  Carolina .     . 

Georgia 

Alabama  .... 

Illinois 

Indiana    .... 

Kentucky  .    .     .     . 

Louisiana.    .    .     . 

Michigan    .     .     .     , 
Mississippi     .    .     . 
Missouri     .    .     .     . 

Ohio    ...... 

Tennessee  .    .    .    . 

JLexas  ..... 


"    July,   1850,  , 
«    April,  1849, 


1,227 

1,185 
.  822 

778 


Capital. 

!!^6, 723,000 

3,576,000 

3,570,000 

56,820,000 

17,712,162 

26,565,279 

84,076,022 

4,447,000 

19,712,371 

1,440,000 

10,515,016 

1,282,300 

13,448,600 

5,011,678 

14,336,735 

7,041,190 

2,300,000 

3,714,000 

3,785,108 

11,330.000 

14,792,600 

1,20(',000 

100,000 

1,208,750 

6,146,141 

10,415,197 

322,000 

1,250,000 

$332,751,154 

303,989,000 
216,000,000 
212,000,000 


Circulation. 

$5,317,000 
3,000,000 
4,000,000 

24,300,000 
5,060,000 
6,640,000 

31,000,000 
4,800,000 

15,000,000 

1,000,000 

4,300,000 

350,000 

12,000,000 

4,600,000 

6,800,000 

5,000,000 

2,000,000 

2,000,000 

5,300,000 

7,000,000 

5,500,000 

600,000 

150,000 

2,200,000 

7,500,000 

4,900,000 

300,000 

800,000 

$171,417,000 

188,000,000 
137,000,000 
120,000,000 


Specie. 
$1,200,000 

180,000 

200,000 
3,960,000 

312,000 

800,000 
14,200,000 

750,000 
6,000,000 

250,000 
3,000,000 

300,000 
4,000,000 
2,000,000 
1,000,000 
1,500,000 

800,000 

350,000 
1,500,000 
4,000,000 
5,000,000 

160,000 

50,000 

1,140,000 

2,444,000 

1,800,000 

100,000 

240,000 

$57,226,000 

60,000,000 
52,000,000 
48,090,000 


The  circulation  and  specie  of  the  Southern  and  Western  States  are  in  oart  estimated. 


81 


It  is  absurd  to  suppose,  that  the  prosperity  of  the 
United  States  is  the  result  of  the  use  of  paper  money, 
as  some  of  the  advocates  and  admirers  of  it  have 
asserted.  The  truth  is,  that  the  country  has  pros- 
pered in  spite  of  such  money;  and  the  energy  and 
enterprise  of  the  people  have  restored  prosperity  after 
convulsions  of  the  currency,  occasioned  by  the  use  of 
bank-notes,  that  would  have  prostrated  for  a  time  any 
other  country.  Paper  money  may  have  been  bene- 
ficial when  the  country  was  drained  of  its  wealth  and 
desolated  by  the  effects  of  long  and  expensive  wars. 
But  forty  years  of  peace  p.nd  prosperity,  that  has  only 
been  interrupted  by  violent  contractions  and  expan- 
sions of  the  currency,  have  increased  its  wealth  to  a 
prodigious  extent,  leaving  no  .apology  for  a  "cheap 
currenc}',"  which  must  from  its  nature  constantly  fluc- 
tuate in  value  and  quantity,  and  operate  with  injustice 
upon  all  tho  pursuits  of  industry.  The  intelligent 
and  skilful  speculator  may  find  his  advantage  in 
watching  the  changes  of  such  a  currency,  to  secure 
the  profits  of  the  delusive  prosperity  during  the  times 
of  expansion,  and  he  may  ovoid  the  losses  occasioned 
by  the  contractions  that  follow  them.  But  the  pub- 
lic receive  no  benefit  from  these  fluctuations  of  cur- 
rency. Scotland  is  often  referred  to  as  evidence  of 
the  successful  use  of  paper  money.  If  the  interest  of 
the  stockholders  of  the  banks  is  the  only  thing  to  be 
considered,  the  success  of  the  Scotch  banks  would  be 
satisfactory.  A  bank  failure  has  rarely  occurred  there. 
But  if  the  condition  of  the  population,  and  of  the  own- 
ership of  the  landed  property  of  Scotland  is  the  re- 
sult of  the  use  of  paper  money,  it  would  not  commend 
the   system   to   our   legislators.     Probably  fewer   than 

11 


im 


W^ 


82 


twenty  individuals  possess  the  fee  of  more  than  three 
quarters  of  the  whole  territory  of  Scotland.  It  is  said 
of  one  of  them,  that  he  can  ride  ninety-nine  miles  in 
a  straight  line  without  going  off  his  own  estates. 
The  laws  of  primogeniture  and  entail  originated  this 
evil,  which  the  use  of  paper  money  may  have  pro- 
tected and  extended.  There  are  in  Scotland  men 
of  as  great  wealth  and  learning  and  accomplishment 
as  can  be  found  in  any  part  of  the  world.  But 
the  masses  of  the  people,  particularly  those  who  are 
crowded  into  the  narrow  streets  and  closes  of  Edin- 
burgh, Glasgow,  and  other  large  towns,  are  poor,  igno- 
rant, and  degraded  beyond  any  thing  that  an  Amer- 
ican can  conceive  of 

The  suspension  of  specie  payments  in  Great  Britain, 
in  1797,  may  have  been  necessary  to  enable  the  gov- 
ernment to  use  the  coin  of  the  country  to  pay  the  ex- 
penses of  the  w^ar  on  the  continent ;  and  a  similar  ne- 
cessity may  exist  again,  if  the  present  war  with  Russia 
is  continued.  Paper  money  was  useful  in  the  United 
States,  during  the  war  of  the  Revolution,  when  the  re- 
sources of  the  country  were  exhausted  by  desolating 
and  expensive  hostilities,  which  rendered  it  impossible 
to  provide  a  more  substantial  currency.  The  profitable 
commerce  of  the  country,  during  the  twenty  years 
that  followed  the  peace,  and  the  adoption  of  the  federal 
constitution,  might  have  supplied  a  specie  currency  with- 
out inconvenience,  which  would  have  secured  a  per- 
manent benefit  by  placing  the  prosperity  of  the  coun- 
try on  a  firmer  basis.  The  suspension  of  specie  pay- 
ments, during  the  war  of  1812,  would  certainly  have 
been  neither  expedient  nor  necessary,  if  real  moncf/ 
had  been   previously   introduced  into   the   circulation 


83 


of  the  country,  in  the  place  of  bank  paper.  The 
federal  constitution  prohibits  the  use  of  paper  money 
for  currency,  but,  thus  far,  selfishness  has  triumphed 
over  that  provision  of  the  constitution. 


The  Practice  of  BanJdng,  and  Effects  of  the   Currency  in 

Neio  England. 

There  are  two  errors  with  regard  to  currency  or 
money,  which  have  been  diligently  pressed  upon  the 
public,  by  those  who  advocate  the  use  of  paper  money, 
and  upon  which  all  their  arguments  in  favor  of  it  are 
based.  The  first  is,  that  paper  money,  so  long  as  it  is 
redeemable  on  demand  in  specie,  cannot  depreciate,  be- 
cause of  the  demand  for  specie  which  its  depreciation 
would  produce.  But  in  fact  it  does  depreciate,  and 
the  remedy  for  that  depreciation,  by  which  its  value 
may  be  restored,  is  the  demand  for  specie.  The  opera- 
tion of  that  demand,  when  it  occurs,  drains  the  country 
of  its  coin,  checks  suddenly  all  bank  loans,  reduces  the 
amount  of  money  in  circulation,  and  produces  a  decline 
in  the  value  of  all  kinds  of  property.  It  usually  brings 
dismay  and  ruin  to  many,  particularly  to  the  enter- 
prising and  industrious  of  limited  means,  who  have 
been  tempted  to  extend  their  business  by  mere  appear- 
ances of  prosperity  produced  by  the  increase  of  paper 
money,  and  the  consequent  depreciation  of  these  paper 
values. 

The  second  error  is,  that,  by  the  use  of  paper  money 
for  currency,  the  coined  money  of  the  country  is  so 
much  additional  capital  to  be  invested  for  the  benefit 
of  the  industry  of  the  country.    In  truth,  it  will  be 


84 


found  that  the  coined  money,  when  paper  money  is 
substituted  for  it,  is  of  more  value  to  export.  And  it 
always  is  exported  to  pay  for  the  importations  of  the 
products  of  foreign  labor  to  compete  with  the  products 
of  domestic  industry  ;  thereby  depriving  home  industry 
of  any  benefit  from  the  rise  of  prices  caused  by  the 
additions  of  paper  mone}^  to  the  currency. 

Another  favorite  assertion  made  by  those  not  famil- 
iar with  the  subject,  or  by  those  whose  interests  have 
blinded  their  powers  of  reasoning,  is  that,  as  to  the 
doctrines  of  mone}^  or  currency,  experience  is  better 
than  theory.  With  all  deference  to  the  teachings 
of  a  true  experience,  may  not  one  presume  to  ask 
whose  experience  is  referred  to  as  a  guide  ?  because 
the  experiences  of  men  differ.  Every  one  is  apt  to 
refer  to  his  own  particular  experience.  In  a  legislative 
assembly,  an  intelligent  agent  of  some  corporation,  in 
the  absence  of  a  better  argument,  announces  that  he 
is  content  with  experience,  and  those  v/ho  please  may 
go  back  "  to  the  primary  school  of  theory."  But  what 
is  his  experience  ?  He  may  be  receiving  large  sala- 
ries for  different  agencies,  and  may  well  be  content 
with  that  experience,  particularly  when  it  leaves  him 
leisure  also  to  attend  to  the  business  of  legislation. 
At  the  very  moment  when  one  of  these  agents  was 
expressing  in  the  legislature  at  Boston  his  satisfaction 
with  his  experience,  during  a  discussion  of  the  cur- 
rency question,  the  four  hundred  workmen  employed 
by  one  of  the  corporations  of  which  he  was  the  agent, 
were  on  a  strike  to  express  their  dissatisfaction  with 
the  value  of  money,  and  discontent  with  their  ex- 
perience, because  it  differed  so  much  from  the  agree- 
ably? experience  of  their  immediate  employer.    To  re- 


85 


fer  again  to  Scotland,  where  the  use  of  paper  money 
is  said  to  have  been  most  successful,  we  have  noticed 
how  different  is  the  experience  of  some  twenty  indi- 
viduals, who  possess  the  fee  of  more  than  three  fourths 
of  the  whole  surface  of  the  land,  from  that  of  the 
masses  of  the  people.  The  proprietor  of  the  estate 
before  mentioned,  who  can  ride  nearly  a  hundred  miles 
in  a  straight  line  without  going  off  his  own  grounds, 
might  be  expected  to  prefer  his  experience  to  any 
theory,  unless  he  possesses  less  than  the  usual  degree 
of  selfishness.  For  him,  the  paper  currency  of  Scot- 
land may  have  proved  itself  "  the  most  perfect  in  the 
world." 

In  fact,  the  truth  of  any  theory  must  always  be 
tested  by  the  light  of  experience.  If  the  theory  is 
sound  and  true,  it  will  harmonize  with  experience. 
It  may  occasionally  happen,  that  the  prophetic  wisdom 
of  a  Newton  may  suggest  true  theories  in  advance  of 
facts  afterwards  explored.  But  the  ordinary  course 
of  a  true  settlement  of  principles  and  theories  is  by 
a  careful  examination  of  known  and  well-ascertained 
facts ;  and  such  theories  are  to  be  respected  as  guides 
and  constitutional  laws  for  future  action.  Whenever 
the  naked  argument  of  the  superiority  of  experience 
over  theory  is  used,  it  is  too  often  prompted  by  the 
dictatorial  spirit  of  ignorant  conceit,  or  by  some  inter- 
ested motive. 

It  is  often  said  that  the  United  States  is  not  yet 
rich  enough,  —  that  it  does  not  possess  sufficient  capi- 
tal, to  have  <i  eiouud  and  substantial  currency.  If  this 
means  that  there  is  not  sufficient  real  money  in  the 
country  to  conduct  its  business,  it  is  true,  and  it  will 
continue  to  be"  true,  so  long  as  the  currency  of  the 


I  i;;  ■  I 


mi- 

m  i: 


'^■■ 


86 


country  consists,  as  it  does  now,  of  paper  money  issued 
by  the  banks.  The  capital  or  property  of  the  country 
has  accumulated  quite  sufficiently  to  constitute  the 
nation  one  of  the  first  class  in  wealth.  The  only  dif- 
ficulty is,  that  too  small  a  proportion  of  the  property 
of  the  country  consists  of  real  mone?/.  An  ample,  uni- 
form, and  constant  supply  of  money  or  currency  to 
conduct  business,  is  essential  to  the  highest  prosperity 
of  an  industrious  people.  When  that  currency  con- 
sists of  the  precious  metals,  it  is  one  of  the  most  use- 
ful, and  one  of  the  most  valuable  to  the  community, 
of  all  the  different  kinds  of  property  that  can  exist 
in  a  civilized  and  commercial  country. 

It  is  common  to  speak  of  the  amount  of  money 
invested  in  any  enterprise.  But,  in  reference  to  any 
enterprise  within  the  country,  the  amount  of  money 
expresses  only  the  value  of  the  labor  and  materials 
that  have  been  invested.  The  money  can  only  be  ex- 
changed for  them.  It  is  not  consumed,  but  remains  in 
the  country  to  perform  its  useful  functions  again  and 
again.  It  is  only  when  the  money  is  exported  to  pay  for 
the  products  of  foreign  labor,  that  it  can  be  said  to  be 
consumed,  or  used,  or  lost  to  the  country ;  particularly, 
if  it  is  exported  to  pay  for  articles  of  mere  luxury, 
that  are  consumed  by  use  without  adding  to  the  wealth 
of  th*'  country.  So  far  as  paper  money  can  be  substi- 
tuted for  it,  the  coined  money  becomes  useless  at 
home,  and  will  be  exported.  The  paper  money,  that 
supplies  its  place,  will  be  constantly  fluctuating  in 
amount,  as  the  interest  or  convenience,  the  confidence 
or  the  fears,  of  those  who  issue  it  may  dictate.  It 
therefore  affords  an  unstable  and  unjust  standard  by 
which  to  measure  the  value  of  property.     It  is  as  if 


87 


the  bushel,  the  gallon,  the  pound  weight,  and  the  yard 
measures  of  commerce  were  by  law  required  to  be 
constructed  of  such  materials  that  their  capacity, 
weight,  and  measure  were  invisibly  affected  by  the 
wonderful  electrical  changes  which  are  always  taking 
place  about  us,  and  constantly  expanding  or  con- 
tracting their  capacity  or  solidity.  In  that  case,  Pro- 
fessors Silliman,  Pierce,  Agassiz,  and  a  few  other  scien- 
tific men,  might  understand  what  they  were  about 
when  making  purchases  or  sales.  But  to  the  rest  of 
the  community,  all  transactions  of  trading  would 
prove  only  a  modified  sort  of  lottery,  in  which  the 
adventurers  would  be  quite  at  the  mercy  of  the  man- 
agers, or,  of  the  accidental  condition  of  the  atmos- 
phere. If  paper  money  is  ever  useful  to  a  country,  it 
can  only  be  in  great  emergencies;  and  it  should  be 
reserved  as  a  resource  to  supply  the  means  for  the 
defence  of  the  country,  when  other  resources  are  ex- 
hausted. At  such  a  time,  it  may  be  used  for  the  busi- 
ness transactions  within  the  country,  to  release  the 
coin  from  that  service,  so  that  it  may  be  used  by  the 
government  in  the  exigency  for  the  common  welfare. 

In  the  applications  to  the  legislature  for  new  bank 
charters,  the  principal  argument  that  is  always  urged 
is,  that  the  existing  banks  cannot  furnish  all  the  loans  or 
discounts  that  are  asked  for.  An  increase  of  the  bank 
capital  to  the  greatest  extent  would  not  relieve  that 
difficulty.  For  the  increase  of  the  bank  loans  would 
only  cause  an  increase  of  currency,  and  a  rise  of 
prices,  and,  consequently,  a  still  greater  demand  for 
money.  The  creation  of  new  banks  and  the  increase 
of  bank  capital  is  not  a  creation  of  money.  So  fiir 
as  it  consists  of  real  capital,  it  is  only  investing  funds 


88 


that  are  already  in  existence,  and  employed  in  some 
other  way,  in  a  new  company,  under  the  control  of 
a  certain  set  of  persons  for  banking  purposes.  Most 
business  people,  particularly  those  who  are  inexpe- 
rienced, or  those  who  are  most  enterprising  and  san- 
guine, are  limited  in  the  extent  of  their  business  only 
by  the  extent  of  their  capital  and  the  additions  they 
can  make  to  it  by  credits  obtained  at  banks  and  other- 
wise. With  any  possible  amount  of  banking  capital, 
the  demand  for  bank  loans  would  be  unlimited,  and 
beyond  what  could  be  satisfied,  except  occasionally, 
for  short  periods,  when  credit  has  been  extensively 
impaired  by  one  of  the  periodical  depressions  of  busi- 
ness occasioned  by  fluctuations  in  the  currency.  It 
will  always  happen  that,  on  discount  days  at  the  banks, 
the  amount  of  money  applied  for  greatly  exceeds  the 
amount  that  can  be  properly  loaned. 

The  managers  of  a  bank  ascertain  from  experience, 
that  the  aggregate  amounts  of  the  circulation  and  of 
the  deposits  of  the  bank,  though  constantly  varying, 
are  very  seldom  diminished  below  a  certain  average. 
Therefore  they  can  usually  loan  with  safety  a  portion 
of  the  funds  derived  from  these  two  fluctuating  sources. 
It  is  partly  from  the  loans  made  of  these  funds  that 
the  profits  are  derived  beyond  the  interest  on  the 
capital  of  the  bank,  to  pay  the  current  expenses,  rent, 
salaries.  State  tax,  and  something  more  than  simple 
interest  to  the  stockholders.  The  great  defect  in  this 
practice  of  banking  is  the  inducement  it  holds  out 
to  the  banks  to  increase,  in  every  possible  way,  the 
amount  of  these  fluctuating  funds  derived  from  the 
circulation  and  the  deposits,  and  upon  the  faith  of 
their   continuance,   to    loan  as  large    an    amount   of 


89 


them  as  possible.  They  are  thus  enabled  at  the  same 
time  to  gratify  the  customers  of  the  banks  with  lib- 
eral discounts,  and  the  stockholders  of  the  banks  with, 
large  profits.  But  in  doing  this,  they  often  encourage 
speculation  and  high  prices  at  a  time  when,  for  the 
security  of  the  banks  and  the  protection  of  the  public, 
they  should  be  endeavoring  to  counteract  them. 

It  is  often  the  case  that  the  directors,  Avho  manage 
the  banks,  are  among  the  largest  borrowers  of  its  funds. 
The  speculation  and  high  prices  which  they  have  en- 
couraged, cause  large  importations,  and  consequently  a 
demand  for  specie,  which  is  sure  to  accompany  or  to  fol- 
low a  period  of  commercial  excitement.  The  specie  in 
the  banks  then  rapidly  diminishes.  Every  dollar  that 
is  paid  in  is  required  to  meet  the  demands  against  the 
bank.  All  discounts  are  stopped,  and  the  most  rigid 
contraction  of  loans  is  necessary  and  unavoidable.  It 
is  at  such  a  time,  when  the  business  community  most 
need  bank  accommodations,  that  the  funds  derived 
from  the  circulation  and  the  deposits  are  reduced  to 
the  lowest  point,  and  that  the  loans,  which  have  encour- 
aged speculation  and  produced  the  high  prices,  must 
be  paid  back.  No  blame  should  be  imputed  to  the 
banks,  or  to  their  directors,  for  the  inconvenience  and 
distress  which  this  causes.  They  have  consulted  only 
the  interests  of  the  banks.  In  doing  so,  they  were 
true  to  the  system.  But  it  is  a  defect  in  the  system, 
that  it  should  be  for  the  interest  of  the  banks  to  ex- 
tend their  loans,  and  that  they  should  possess  the 
greatest  power  to  do  so,  at  times  when  the  public  good 
would  be  promoted  by  reducing  their  loans.  The 
interest  of  the  banks  is  at  variance  with  the  public 
interest.    The  customers  of  the  banks  sustain  the  loss, 

12 


i'.' 


m 


Hi  , 


li'N 


90 


whilst  the  banks  have  had  the  profit.  At  the  same 
time,  it  must  be  admitted  that  the  banks  could  not  do 
otherwise  for  their  own  safety  than  to  insist  on  the 
payment  of  all  debts  as  they  become  due.  The  banks 
will  presently  be  relieved  by  the  sacrifices  which  their 
customers  are  obliged  to  make  to  meet  their  engage- 
ments under  this  evil  and  mistaken  system.  • 

Every  business  man  who  owes  money  to  the  banks, 
at  those  times  when  it  is  absolutely  necessary  for  their 
safety  to  reduce  their  loans,  should  be  ready  to  make 
every  possible  effort  to  fulfil  his  promises.  To  pre- 
vent the  commencement  and  increase  of  any  embar- 
rassment, he  ought  to  yield  to  the  demands  of  money- 
lenders, whatever  they  may  be,  if  it  is  necessary  to 
enable  him  to  protect  his  indorsers.  When  the  crisis 
is  past,  it  may  be  well  for  those  business  men  who 
have  survived  it,  to  consider  whether  a  system  of 
banking,  which  actually  induces  such  rapid  contrac- 
tions of  currency,  and  such  sudden  convulsions  of  the 
money  market,  which  baffles  the  prudence  and  fore- 
sight of  all  who  use  credit  in  their  business,  is  in  fact 
what  it  is  often  declared  to  be,  "  the  most  perfect  sys- 
tem of  currency  and  banking  in  the  world."  Should 
they  seriously  doubt  the  merit  of  "  the  system,"  they 
may  wish  to  encourage  some  change  that  will  render 
it  better  and  more  useful.  Should  they  seriously  de- 
sire a  more  rational  and  a  more  permanently  pros- 
perous business,  and  a  currency  more  uniform  and 
more  stable,  they  may  be  willing  to  take  the  risk  of 
rendering  it  for  a  time  less  easy  to  borrow  money. 

Banks  and  bankers  are  convenient  and  useful,  not 
only  to  merchants  and  traders,  but  to  the  public.  In 
the  minds  of  many,  particularly  in  the  New  England 


91 


States,  banks  are  so  much  associated  with  paper  money, 
that  it  seems  to  them  impo!?isib]o  that  they  should 
exist  without  it.  The  power  to  issue  notes  to  be 
used  for  currency  or  money  is  not  a  necessary  attri- 
bute of  a  bank ;  for  banks  exist  in  all  commercial 
countries,  and  perform  all  their  useful  functions  as 
well,  and  perhaps  better,  without  the  power  to  issue 
their  notes  for  money,  because  their  action  is  then 
more  uniform.  If  the  right  to  issue  notes  to  circulate 
for  currency  were  taken  away  from  every  bank  in  the 
United  States,  the  banks  would  be  continued  wher- 
ever they  were  really  useful  to  the  public,  and  would 
carry  on  the  business  of  hanJdng  for  proper  business 
purposes,  and  not  as  mere  traders  in  circulation.  The 
effect  of  restricting  their  issues  of  notes  would  be  to 
diminish  the  profits  of  the  banks  by  reducing  the 
amount  of  their  loans.  The  effect  upon  the  currency 
would  be,  that  the  j  <  ious  metals  would  supply  the 
place  of  the  bank-notct  as  the}  were  withdrawn  from 
circulation,  and  the  currency  would  then  afford  a  more 
permanent  measure  of  value.  The  opportunities  to 
loan  money  at  exorbitant  rates  would  not  so  constant- 
ly occur,  but  capitalists  and  the  public  would  become 
accustomed  to  receive  and  to  pay  the  lawful  rates 
for  the  use  of  money,  and  would  soon  be  well  satis- 
fied with  the  present  leg  d  rate  of  interest  on  loans 
and  on  their  bank-stocks.  We  should  then  no  longer 
hear  of  petitions  for  the  repeal  of  the  usury  laws,  which 
are  now  almost  the  only  safeguard  against  the  rapacity 
of  money-lenders. 

An  excess  of  bank  capital  and  of  bank  loans^  only 
stimulates  trading  and  speculation.  Such  an  excess 
is  of  no  public  benefit,  though  individuals  may  there- 


^, 


IMAGE  EVALUATION 
TEST  TARGET  (MT-3) 


t^ 


y_ 


i.O 


1.1 


IU|28    |25 

K^'  Kii  1 2.2 
Sf  144  "« 
^   1^    12.0 


11.25  iu  III.6 


HiotQgraphic 

Sdaioes 

Corporation 


23  WKT  MAM  STRUT 

WnSTIR,N.Y.  14510 
( 716  I  •72-4503 


O 


;\ 


■ 


^j^ 


•J 


92 


m 


m. 


'^^ 

:<;:'» 


IS''':-1 


iiii 


by  enrich  themselves.  The  effect  of  too  much  bank 
capital  upon  the  industry  of  the  country  is  injurious, 
by  encouraging  the  investment  of  money  in  temporary 
loans  for  p\irposes  of  speculation,  instead  of  inducing 
permanent  and  productive  investments,  such  as  the 
improvement  of  lands,  the  building  of  ships,  railroads, 
manufactories,  and  other  objects,  which  give  employ- 
ment to  the  industry  of  the  country,  and  are  the  foun- 
dations of  all  useful  trade.  The  object  of  banks  should 
be  to  facilitate,  by  temporary  loans,  the  distribution 
among  the  consumers  of  the  products  of  industry ;  but 
those  products  are  the  results  of  more  permanent  in- 
vestments of  capital. 

Another  bad  efiect  of  an  excess  of  bank  capital  is 
its  tendency  to  concentrate  the  business  of  the  com- 
munity in  the  hands  of  a  few  large  houses,  whose 
wealth  and  character  give  them  influence  in  the  con- 
trol of  the  loans  of  the  banks,  enabling  them  to  monop- 
olize many  branches  of  business  through  the  amount 
of  money  which  they  can  temporarily  control.  The 
advantage  of  the  possession  of  great  wealth,  particu- 
larly when  it  is  united  with  the  possession  of  intelli- 
gence and  a  general  and  well-deserved  reputation  for 
integrity,  will  always  be  as  great  as  should  belong  to 
any  private  individuals.  Surely,  to  the  same  indi- 
viduals should  not  be  granted  in  addition  the  advan- 
tages derived  from  the  control  of  the  banks,  and  the 
funds  supplied  by  the  paper  money  that  is  used  for 
the  currency  of  the  country. 

Currency  or  money,  when  it  consists  of  the  precious 
metals,  is  one  of  the  items  of  the  property  of  a  coun- 
try. But  it  is  not  property  or  wealth  when  it  con- 
sists only  of  promises  to  pay  money,  unless  such  prom- 


93 


ises  are  the  substitute  and  representative  of  coin  or 
bullion  that  is  actually  held  in  reserve  for  the  pay- 
ment of  such  promises.  It  is  not  true,  when  paper 
money  is  substituted  for  coined  money,  that  the  paper 
is  so  much  additional  capital  to  be  invested  for  the 
benefit  of  domestic  industry ;  but  the  reverse  of  it  is 
true ;  for  the  only  use  that  can  be  made  of  the  coin 
is  to  send  it  abroad  to  pay  for  the  products  of  foreign 
labor.  It  may  increase,  for  a  time,  the  amount  of 
loans  for  purposes  of  speculation ;  but  it  will  not  in- 
crease the  amount  of  capital  that  can  be  permanently 
invested  for  the  benefit  of  industry. 

With  a  paper  currency,  property  may  accumulate, 
but  an  accumulation  of  money  is  hardly  possible.  For 
bank-notes  may  be  hoarded,  or  may  be  deposited  in 
the  banks ;  in  the  one  case  they  would  increase  the  cir- 
culation of  the  bank,  and  in  the  other  case,  the  deposit 
of  the  bank ;  and  in  either  case,  the  amount  is  loaned 
by  the  bank  to  be  used  by  others.  When  deposits  are 
demanded  for  any  purpose  by  the  owners,  the  bank 
must  withdraw  the  amount  from  the  use  of  those  to 
whom  they  have  loaned  it.  The  advocates  of  paper 
money  claim  as  its  great  advantage,  that  it  leaves  no 
money  idle  in  the  community ;  that  there  is  no  money 
that  is  not  earning  something,  either  for  its  owner,  or 
for  some  one  who  knows  better  how  to  employ  it. 
But  more  important  questions  are,  the  purpose  for 
which  the  money  is  to  be  employed?  and,  is  it 
true,  to  any  great  extent,  that  those  who  do  not 
own  money  know  better  how  to  employ  it  than 
those  who  do  own  it  ?  The  owner,  rather  than  ftllow 
it  to  remain  for  a  long  time  idle  and  unproductive, 
will  seek  some  useful  and  permanent  mode  of  investr 


94 


■fe' 


ing  it.  The  temporary  possessor  of  it  by  a  loan 
from  a  bank  may  invest  it  in  some  speculation  in 
stocks  or  in  merchandise,  which  he  foresees,  or  fan- 
cies, some  one  will  need  and  be  obliged  to  purchase 
of  him  at  a  higher  price  before  he  is  required  to  pay 
back  the  loan.  It  is  of  no  kind  of  importance  or 
benefit  to  the  public,  whether  the  money  during  this 
time  lays  idle  or  not;  but  it  is  of  importance  and  a 
great  benefit  to  individuals  and  to  the  public,  that 
when  any  important  public  improvement  is  to  be 
made,  the^e  should  be  capital  unemployed  that  can  be 
usefully  and  profitably  invested. 

So  far  as  paper  money  is  only  a  substitute  and 
representative  of  the  precious  metals,  its  circulation 
can  neither  be  of  benefit  to  those  who  issue  it,  nor 
to  the  public  who  circulate  it ;  except  that  it  may  be 
sometimes  convenient  to  use,  from  the  fact  that  it.  is 
more  portable  and  more  easily  counted.  The  profit 
on  the  issue  of  paper  money  is  derived  from  the 
amount  of  the  excess  of  it  that  can  be  circulated  be- 
yond the  amount  of  coin  that  must  be  kept  on  hand 
to  meet  the  demand  for  its  redemption. 

The  object  of  laws  to  regulate  banks  which  have 
the  right  to  issue  bills  for  currency,  is,  to  establish  a 
system  that  will  diminish  the  dangers,  and  avoid  the 
evil  effects,  of  their  imprudent  or  fraudulent  manage- 
ment. Their  paper,  which  circulates  as  money,  is 
based  on  public  confidence,  and  if  that  confidence 
should  for  any  reason  be  impaired  or  withdrawn, 
there  is  great  danger  that  the  most  prudently  man- 
aged banks  would  be  involved  in  the  ruin,  which 
would  be  certain  to  fall  upon  those  which  had  been 
conducted  in  a  fraudulent  or  unskilful  manner.    To 


J? 

M 


95 


be  convinced  that  there  is  danger  of  this,  it  is  only 
necessary  to  look  at  the  annual  reports  of  the  condi- 
tion of  the  banks.  According  to  the  report  for  1854, 
of  the  condition  of  the  banks  in  Massachusetts,  their 
debts,  including  circulation,  deposits,  and  balances  due 
to  other  banks,  amounted  to  over  fifty-one  millions 
of  dollars,  payable  on  demand  in  specie,  of  which  there 
was  less  than  four  millions  in  all  the  banks  of  the 
commonwealth. 

If  the  public  suffer  by  the  insecurity  of  the  bills  in 
their  possession  because  of  bank  failures,  it  is  only  on 
the  amount  of  the  bills  which  they  happen  to  hold; 
but  the  inflations  and  contractions  of  the  currency 
affect  the  whole  property  of  the  community.  An 
inflation  of  the  currency,  and  the  consequent  rise  of 
prices,  suddenly  enriches  those  who  hold  large  amounts 
of  property ;  and  on  the  other  hand,  a  contraction  of 
the  currency,  and  the  consequent  fall  in  the  value  of 
property,  often  renders  them  bankrupt.  Mr.  "Web- 
ster says,  "Do  these  violent  fluctuations  of  currency 
do  good  to  him  who  depends  upon  his  daily  labor  for 
his  daily  bread  ?  They  may  gratify  the  greediness  for 
sudden  gain,  or  the  rashness  of  sudden  speculation, 
but  they  can  bring  nothing  but  injury  and  distress  to 
the  homes  of  patient  industry  and  honest  labor.  Who 
are  they  that  profit  by  this  state  of  things  ?  They  are 
not  the  many,  but  the  few ;  they  are  the  speculators, 
brokers,  dealers  in  money,  and  lenders  of  money  at 
exorbitant  interest."  An  increase  of  the  amount  of 
money  in  circulation,  by  the  increase  of  prices  which 
it  produces,  may  stimulate  production ;  and  if  it  is  an 
increase  of  real  money,  this  effect  may  be  of  a  perma- 
nent character,  and  advantageous  to  the  community. 


90 


But  if  it  is  only  an  increase  of  paper  money,  its  effects 
are  usually  sudden  and  rapid.  Before  any  benefit  can 
be  derived  from  the  enterprise  which  it  has  stimulated, 
a  contraction  of  the  currency  too  often  occurs,  entail- 
ing loss  and  perhaps  bankruptcy  on  those  who  have 
been  tempted  into  new  adventures.  Any  benefit  that 
may  result  from  such  a  course  of  business  is  reaped  by 
money-lenders. 


I 


'  'Hi' 


,   ^' 


Facility  of  establishing  Netv  BanJcs  in  Massachusetts ^  and  the 
evil  Effects  produced  hj  the  large  issues  of  their  Notes. 

When  an  application  is  made  to  the  legislature  for 
a  new  bank  charter,  it  cannot  be  for  the  purpose  of 
investing  money  that  is  lying  idle,  for  such  a  state 
of  things  can  hardly  exist  under  the  present  system 
of  currency  and  banking  in  the  United  States.  There 
is  always  most  demand  for  the  creation  of  new  banks 
when  money  is  most  plenty,  because  then  prices  are 
rising,  and  many  are  therefore  disposed  to  increase 
their  business,  and  for  that  purpose  to  increase  their 
facilities  for  borrowing  money.  The  premium  at  which 
bank-stock  sells  at  such  a  time,  is  another  inducement 
to  subscribe  for  the  stock  of  new  banks. 

In  Massachusetts,  it  is  usual  for  the  legislative  com- 
mittee to  whom  an  application  for  a  new  bank  is  re- 
ferred, to  ask  for  the  subscription  list  for  the  capital 
stock.  The  chairman  of  the  committee  examines  it 
with  much  gravity,  Jind  with  as  much  intelligence  as 
if  he  were  trying  to  decipher  the  hieroglyphics  on  an 
Egyptian  monument.  The  petition  may  be  for  a  bank 
in  Boston,  and  the   chairman  of  the  committee  may 


ji 


97 


}s  it 

as 

an 

)ank 

I  may 


happen  to  be  a  politician  from  the  interior  of  the 
State,  specially  selected  for  his  peculiar  fitness  to  pre- 
side over  the  committee,  because  entirely  unacquainted 
with  business  men  and  with  banking.  His  impartiality 
may  therefore  be  taken  for  granted,  and  he  should  be 
presumed  to  have  no  prejudices  or  previously  formed 
opinions  on  the  subject  that  would  prevent  him  from 
adopting  such  views  as  parties  interested  may  wish 
him  to  sustain. 

There  is  never  any  trouble  in  getting  a  complete 
subscription  list  for  the  stock  of  a  new  bank,  as  it  is 
not  necessary  either  that  the  parties  who  subscribe 
should  take  the  stock,  or  that  they  should  furnish  any 
money  to  pay  for  their  subscription  if  they  do  take  it. 
If  the  petition  for  the  charter  is  granted,  before  the  new 
bank  can  be  organized,  money  will  probably  have 
become  scarce  in  consequence  of  the  previous  rise  of 
prices.  And  the  scarcity  will  be  increased  by  with- 
drawing money  from  other  uses,  to  pay  in  as  capital 
for  the  new  bank ;  that  is  to  say,  so  far  as  any  money 
is  paid  in  for  the  new  capital.  Fortunately,  there  are 
some  subscribers  to  almost  every  new  bank  who  prefer 
to  pay  in  the  money  for  their  subscriptions. 

It  is  not  necessary  that  any  money  should  be  paid 
by  the  subscribers  of  the  capital  stock  of  a  new  bank. 
Their  subscriptions  can  be  paid  by  checks  drawn  on 
the  new  bank,  and  the  discounts,  made  on  the  same 
day  for  the  parties  who  have  drawn  the  checks,  being 
placed  to  their  credit  will  make  the  checks  good.  Or, 
the  checks  may  be  drawn  on  another  bank,  and  the 
notes  of  the  new  bank  paid  out  for  the  discounts  made 
on  the  same  day,  being  deposited  at  the  other  bank,  will 
make  those  checks  good.    If  the  checks  are  sent  to  the 

13 


98 


11'' 


I> 


K 
U 

lib  ' 


i 

i' 


other  bank  on  which  they  are  drawn,  and  payment 
demanded  at  the  counter,  they  must  by  law  be  paid 
in  cash  or  in  their  notes. 

The  statement  of  the  condition  of  a  new  bank  estab- 
lished in  this  way,  without  the  actual  payment  of  any 
money  by  the  subscribers  of  the  capital  stock,  would 
show,   at  the  close   of  business  on  the  first   day,  that 
"the  capital"   had   all  been  paid  in  according  to  law. 
It  would  also  show  a  considerable  amount  on  hand  of 
*'ikc  bills  of  other  banks  **  which  had   been  received  for 
checks  drawn  on  other  banks  to  pay  for  subscriptions 
to  the  capital.    And  these  notes  of  other  banks,  being 
payable   on  demand  in   specie,  can  be  called  "specie 
funds."     Besides,  there  would  be  a  respectable  " loan" 
amounting  perhaps  to  one  half  more  than  the  capital, 
consisting  of  the  notes  that  have  been  discounted  for 
the  directors,  the  subscribers,  and  other  friends  of  the 
new  bank.     Moreover,  there   would   appear  a  large 
"  amount  of  deposits"  considering  that  the  bank  has  been 
in  operation  only  one  day,  consisting  for  the  most  part 
of  the  excess  of  the  discounts  that   have   been  made 
beyond  the  amount  paid  for  checks  drawn  to  pay  for 
subscriptions  to  the  capital  stock.    The  notes  of  the 
bank,  paid  out  for  checks  drawn  against  deposits,  will 
have  made  ^^the  circulation"  a  fair  one,  and  it  will  be 
daily  increased  by  the  efforts  of  the   various  friends 
of  the  new  bank  to  get  the  notes  into  general  cir- 
culation by  paying  them  out  in  small  sums,  and  in 
distant  places.    Some  of  them  will  be   sent  to  Mich- 
igan and  other  distant  States,  where  they  will  circulate 
for  a  time.     But,  in  such  cases,  they  are  usually  sent 
back  again  "to  plague  the  inventors,"  just  at  the  times 
when  it  is  most  inconvenient  to  the  bank  to  see  them 


99 


return.  The  shares  of  the  capital  stock  of  this  new 
bank  can  also  be  used  by  the  subscribers  as  security 
for  loans  of  money  from  savings  banks,  trust  companies, 
and  other  institutions,  that  never  make  loans  without 
a  pledge  of  stocks  in  addition  to  personal  securities. 
Among  the  assets  of  savings  banks,  there  are  usually 
found  a  large  amount  of  the  stocks  of  new  banks  held 
as  security  for  loans. 

Thus,  it  may  he  that  not  one  dollar  of  actual  money 
has  been  paid  into  this  new  bank  for  its  capital.  All 
that  is  necesmry  to  establish  such  a  bank,  is  an  act  of 
incorporation.  "There  is  no  difficulty  in  setting  a 
bank  in  operation  with  no  capital.  The  character  of 
such  a  bank  rests  entirely  on  the  character  and  re- 
sponsibility of  the  debtors  to  the  bank.  If  managed 
with  prudence  and  skill,  no  difficulty  occurs.  But 
such  institutions,  under  the  best  management,  are  not 
the  proper  basis  of  a  general  circulating  medium."  ^ 

The  prjsent  system  of  currency,  consisting  of  a 
constantly  fluctuating  amount  of  paper  money,  is  an 
unjust  one.  The  artificial  wealth  which  it  creates, 
is  unfavorable  to  labor  and  to  capital.  It  gives  a 
fictitious  and  uncertain  value  to  property  of  every 
kind,  which  enables  the  adroit  and  skilful  speculator 
to  take  undue  advantage  of  his  neighbor.  And  it  robs 
labor  of  a  portion  of  its  just  earnings  by  increasing  the 
cost  of  the  necessaries  of  life,  thereby  depriving  the 
laborer  of  many  of  those  articles,  which  he  would 
enjoy  with  a  sounder  currency.  "It  is  a  mistaken 
idea  that  there  is  any  antagonism  between  labor  and 
capital.     They  are  mutually  dependent  on  each  other, 


^  Hon.  Nathan  Appleton. 


100 


I'" 


W'i'i 


I* 


II: 


hfJ|;lU 


*;#;■! 


and  mutually  helpers  of  each  other;  and  he  is  no 
friend  to  the  general  interests  of  the  State,  or  to  any 
portion  of  the  people,  who  would  strive  to  foment  a 
spirit  of  hostility  between  them."  ^ 

Capital  supplies  the  raw  materials,  the  tools,  the 
shelter,  and  the  food  for  labor,  until  its  products  are 
completed  and  disposed  of,  when  it  is  paid  back  by 
their  sale.  Ex.amine,  for  example,  the  investment  of 
the  capital  of  one  of  our  great  manufacturing  corpora- 
tions. It  is  invested  in  the  buildings  and  machinery 
which  are  for  the  shelter  and  the  tools  of  the  persons 
who  perform  the  labor,  in  the  necessary  stock  of  raw 
materials,  and  in  the  wages  for  their  work  until  it  is 
completed  and  sold.  Those  persons  who  perform  the 
labor,  agree  to  take,  as  wages  or  salaries,  specified  and 
fixed  sums  for  their  share  of  the  products.  Whatever 
there  may  be  over,  when  the  products  are  sold,  goes 
to  replace  the  capital  employed,  and  for  profit  to  the 
owners  of  it.  If  this  is  a  fair  statement  of  the  arrange- 
ment between  capital  and  labor,  and  if  the  arrange- 
ment is  fairly  carried  out,  the  interests  of  both  are 
identical.  But  if,  after  this  arrangement  is  made,  an 
inflation  of  the  currency  is  produced  by  additional 
issues  of  paper  money,  by  which  the  prices  of  all 
articles  are  enhanced,  the  share  of  the  profits  which 
goes  to  the  owners  of  the  capital  will  be  greatly  in- 
creased, while  the  value  of  that  which  those  who  per- 
form the  labor  have  agreed  to  take  as  wages  or  salaries 
will  be  greatly  diminished  by  the  increased  cost  of 
the  various  supplies  needed  for  the  support  of  their 
families. 


m 


•-■■ri- 

1: 


» Gov.  Clifford's  Message,  1853. 


101 


The  most  simple  way  to  deprive  the  mechanics  and 
the  laborers  of  their  rightful  share  in  the  general 
prosperity  of  the  country,  would  be  to  reduce  their 
wages;  and  it  would  be  the  fairest,  because  it  would 
be  readily  understood.  But  an  increase  of  the  amount 
of  money  in  circulation,  which  will  increase  the  prices 
of  all  kinds  of  commodities,  is  quite  as  effectual,  and 
more  easily  accomplished,  because  it  is  not  so  quickly 
comprehended.  What  great  difference  can  it  make 
to  the  mechanics  and  laborers,  whether  the  amount 
of  their  wages  is  reduced,  or  whether  the  cost  is  in- 
creased of  the  food,  clothing,  rent,  and  other  necessary 
supplies  for  their  support  ?  It  is  said  they  are  "  as 
tvell  off"  when  prices  are  advanced,  because  they  get 
more  for  their  labor.  But  that  is  not  true.  Commerce 
regulates,  to  some  extent,  the  price  of  labor.  The  first 
maxim  of  trade  is  to  buy  where  goods  are  cheapest. 
If  the  price  of  labor  is  advanced,  the  cost  of  production 
will  be  increased,  and  the  merchant  will  then  find  it 
more  profitable  to  import  goods  than  to  pay  higher 
wages  for  labor  to  manufacture  them  at  home.  For  that 
reason,  and  because  the  profits  of  manufacturing  depend 
as  well  upon  distant  as  upon  local  commerce,  wages  do 
not  rise  in  proportion  to  other  things  when  the  currency 
is  extended.  Adam  Smith  has  devoted  many  pages 
of  his  "  Wealth  of  Nations,"  to  an  explanation  of  the 
causes  why  the  wages  of  labor  do  not  rise  equally  with 
other  things,  when  a  general  rise  of  prices  occurs.  He 
takes  it  for  granted  that  no  one  can  honestly  doubt  the 
fact  that  wages  do  not  rise  equally  with  other  things. 
The  manufacturer,  the  trader,  and  the  merchant  inr 
crease  their  profits  for  a  time  by  the  high  prices  pro- 
duced by  an  expansion  of  the  currency ;  but  the  same 


ill! 

m 


ii:! 


Hh: 


102 


prices  for  labor  will  not  supply  the  same  quantities  of 
those  necessaries  and  conveniences,  which  the  laboring 
classes  have  been  accustomed  to  have.  This  produces 
discontent ;  and  then  commence  those  "  strikes  "  among 
workmen,  which  always  occur  during  seasons  of  specu- 
lation and  high  prices. 

The  capital  in  a  country  may  be  distributed  in  the 
possession  of  many  persons.  Much  of  it  may  be  pos- 
sessed by  the  laborers  themselves,  as  it  is  in  the  United 
States.  Or,  it  may  be  in  large  masses  in  the  posses- 
sion of  a  few  individuals,  as  it  is  generally  in  Great 
Britain.  In  either  case,  the  capital  is  necessary  to  the 
industry  of  the  country,  for  it  furnishes  the  necessary 
support  of  labor  until  Its  products  are  prepared  for 
sale  and  ready  for  use.  Active  capital  consists  of 
many  different  kinds  of  property,  and  portions  of  it 
in  the  possession  of  individuals  are  constantly  varying 
in  form  by  exchanges,  or  sales  and  purchases.  The 
possession  of  such  capital  is  the  possession  of  the  tools 
and  machines  to  employ,  and  of  the  means  to  support, 
for  a  given  time,  those  who  perform  a  certain  quantity 
of  labor. 

All  labor  must  derive  its  support  from  capital  in  the 
possession  of  the  laborer  or  of  his  employer,  until  the 
labor  is  completed,  and  until  the  object  of  the  labor 
is  ready  for  sale.  No  income  can  be  derived  legitimate- 
ly from  capital,  except  by  employing  it  directly  or  in- 
directly for  the  support  of  industry.  Is  it  expedient, 
therefore,  to  sanction  the  use  of  an  artificial  money  or 
capital,  that  will  give  its  possessor  the  power  to  control 
the  supplies  necessary  for  the  support  of  labor  ? 

The  bill  of  rights  says,  "  no  man,  nor  corporation,  or 
association  of  men  have  any  other  title  to  obtain  ad- 


103 


•ol 
or 


vantages,  or  particular  and  exclusive  privileges  distinct 
from  the  comnumity,  than  what  arises  from  the  con- 
sideration of  services  rendered  to  the  public."  Banks 
now  acquire,  under  their  charters,  the  right  to  issue 
their  promises  to  pay  money  on  demand  to  be  used  as 
currency  or  money.  This  is  a  right,  which  is  withheld 
from  ati  other  persons.  What  services  have  the  banks 
rendered  to  the  public  to  entitle  them  to  the  particular 
and  exclusive  privilege  of  furnishing  the  currency? 
What  is  it  but  a  monopoly,  to  say  to  one  set  of  citi- 
zens. You  may  issue  promises  to  pay  money  on  de- 
mand under  certain  restrictions,  to  be  used  as  money 
by  the  community,  and  to  refuse  this  right  to  issue 
such  promises  to  another  set  of  citizens,  who  ask  for  it 
on  exactly  the  same  conditions  ?  If  it  is  not  the  in- 
tention to  establish  bank  monopolies,  but  to  treat  all 
the  citizens  of  the  commonwealth  alike,  why  should 
not  banks,  and  all  other  business  corporations  be,  as 
far  as  it  is  possible,  established  under  general  laws, 
which  should  be  free  to  all  who  choose  to  avail  of  their 
provisions,  and  to  conform  to  their  restrictions  ?  There 
are  now  on  the  statute-book  in  Massachusetts,  general 
laws  for  the  establishment  of  banks,  and  of  business 
corporations.  If  those  laws  are  not  perfect,  render 
them  so  by  additional  legislation,  and  require  new 
banks  and  new  business  corporations  to  be  formed  un- 
der them,  instead  of  granting  special  acts ;  and  amend 
the  laws  affecting  the  existing  banks  and  corporations 
established  by  special  acts,  so  that  they  may  conform 
to  the  general  laws  for  the  establishment  of  similar 
corporations. 

The  amount  of  taxes  paid  by  the  banks  is  by  some 
considered  a  fair  remuneration  to  the   State  for  the 


104 


m 


I:' 


privileges  granted  by  their  charters.  That  the  tax  on 
the  banks  is  not  excessive,  is  evident  from  the  eager- 
ness with  which  many  of  them  have  recently  been  ask- 
ing to  increase  the  amount  of  their  taxes,  by  enlarging 
their  capitals,  and  from  the  constant  applications  to 
the  Legislature  for  new  banks.  The  amount  of  their 
dividends  proves  that  they  can  well  afford  to  pay  the 
bank  tax.  The  wisdom  of  this  mode  of  taxation  may 
be  doubted  j  it  is  somewhat  analogous  to  the  exploded 
systems  of  farming  taxes,^  and  of  selling  monopolies ; 
and  it  is  an  indirect  mode  of  taxing  the  labor  and  en- 
terprise of  the  country,  rather  than  the  property. 

Laws  providing  for  any  changes  that  will  improve  the 
currency  and  affect  property,  should  be  prospective. 
Ample  time  ought  to  be  afforded  to  make  the  necessary 
preparations,  so  that  the  public  may  suffer  as  little 
inconvenience  as  is  possible.  With  regard  to  any 
changes  affecting  the  currency,  particular  care  should 
be  taken  to  select  the  proper  time.  They  should  not 
be  urged  when  the  banks  are  pressed  by  an  active 
demand  for  specie,  to  meet  which  all  their  resources 
may  be  required.  This  would  temporarily  increase  the 
difficulty  to  the  banks  and  the  pressure  on  the  trading 
portions  of  the  community.  Nor  should  it  be  attempt- 
ed at  the  time  when  the  banks,  by  increasing  their 
loans  and  circulation,  have  commenced  another  infla- 
tion of  the  currency.  Because  the  change  to  a  decline 
of  prices,  and  the  scarcity  of  money  which  would  fol- 
low, may  at  such  a  period  be  ascribed  to  the  change  of 


m 


^  It  is  customary  in  some  countries  for  the  government  to  farm  the  reve- 
nues, —  the  taxes,  imposts,  or  excise,  —  to  individuals,  generally  rich  bank- 
ers, who  collect  them,  and  pay  to  the  government  an  amount  agreed  upon 
l}($forehand>  or  a  percentage  of  the  amount  collected. 


Wm 


105 


the  laws.  The  best  time  to  reinforce  the  currency,  and 
to  make  any  changes  in  the  laws  affecting  it,  with  the 
view  of  rendering  the  currency  more  stable  and  uni- 
form in  value,  will  be,  after  the  banks  are  relieved  from 
a  pressure  consequent  upon  a  previous  inflation  of  the 
currency.  Probably  no  better  time  will  ever  occur  to 
commence  it,  and  to  improve  and  invigorate  the  cur- 
rency, than  during  this  present  year  of  1855.  The 
severe  pressure  in  the  money  market  of  the  previous 
year  has  diminished  the  loans  and  circulation  of  the 
banks,  has  increased  their  amounts  of  specie,  has  re- 
duced the  foreign  exchanges  below  the  rates  which 
render  the  export  of  specie  profitable,  and  has  checked 
the  importations  of  the  products  of  foreign  labor.  An 
improved  currency  would  do  much  to  obviate  the  com- 
plaints of  the  interference  of  foreign  labor  with  our 
domestic  industry,  for  it  would  strike  at  the  root  of  the 
difficulty  which  causes  those  complaints. 

In  proportion  to  the  population,  the  aggregate  of 
property  in  the  United  States  probably  exceeds  that 
of  any  other  country,  if  in  the  estimate  of  property, 
the  banks  and  stocks  and  government  debts  are  omitted, 
which  are  only  evidences  of  debt  from  one  portion  of 
the  people  to  another,  and  therefore  do  not  add  to  the 
wealth  of  the  country.  The  property  in  our  country  is 
spread  over  a  greater  surface,  than  in  Europe,  being 
more  subdivided,  and  in  possession  of  greater  numbers, 
instead  of  being  concentrated  in  large  masses  in  the 
possession  of  a  few.  Our  commerce,  both  foreign  and 
domestic,  now  exceeds  that  of  any  country  in  the  world, 
except  Great  Britain.  With  the  precious  metals  in 
large  quantities  from  California,  and  from  other  quar- 
ters, which  that  commerce  brings  into   the   country, 

14 


106 


ll:"' 
If 


m 


p. 
m  ' 


i 

I 


ll 


and  with  a  rapidly  increasing  population  devoted  to 
industrial  and  productive  pursuits,  the  United  States,  if 
possessed  of  a  currency  of  a  substantial  character, 
should  become  the  actual,  as  they  are  the  geographical 
centre  of  the  monetary  affairs  of  the  civilized  world. 
Now,  their  monetary  affairs  are  controlled  by  the  policy 
of  the  Bank  of  England,  and  the  condition  of  the  Lon- 
don money  market.  All  that  is  needed  to  render  the 
country  as  independent  of  Europe  in  its  financial 
concerns,  as  it  is  in  its  political  relations,  is  to  have  a 
larger  amount  of  the  wealth  of  the  country  invested  in 
the  precious  metals  to  be  used  for  currency  instead  of 
the  paper  money  that  is  now  substituted  for  them.  The 
gold  and  silver  of  the  country,  which  are  now  annually , 
exported  to  be  exchanged  for  the  products  of  foreign 
labor,  would  then  be  retained  in  the  country,  and 
supply  a  substantial  currency,  to  be  used  by  our  own 
people,  in  the  conduct  of  the  proper  business  of  our 
own  community. 

The  export  of  specie  from  the  United  States  during 
the  last  four  years  has  been  one  hundred  and  eighty- 
five  millions  of  dollars.  The  estimate  of  the  amount  of 
bank-notes  in  circulation  in  November,  1854,  was  one 
hundred  and  seventy-one  millions  of  dollars.  The  bank- 
notes are  certainly  a  cheap  currency/,  for  it  does  not  cost 
much  to  manufacture  them.  It  is  in  consequence  of 
their  use,  instead  of  coin,  for  money,  that  so  much  gold 
has  been  sent  abroad,  and  the  products  of  foreign  labor 
brought  back  in  exchange  for  it.  If  coin  had  been  used 
instead  of  bank-notes  during  the  last  four  years,  a  great 
part  of  the  gold  that  was  exported  would  have  been 
retained  in  the  country,  and  would  be  at  this  time  so 
much  addition  to  the  substantial  wealth  of  the  country. 


m 


107 


It  may  therefore  be  said  that  the  use  of  the  bank-notes, 
instead  of  coin,  for  money  during  those  four  years,  has 
cost  the  community  an  amount  in  gold  more  than  equal 
to  all  the  bank-notes  in  circulation  throughout  the 
United  States. 

The  States  of  Massachusetts,  Connecticut,  and  Ehode 
Island  are  now  the  great  manufacturers  of  banks  and 
paper  money.  In  proportion  to  population,  the  capital 
and  circulation  of  the  banks  in  each  of  these  States,  is 
more  than  double  that  of  any  other  State  in  the  Union. 
During  the  last  war  with  Great  Britain,  when  the 
New  England  States  alone  possessed  a  specie  currency, 
they  were  the  centre  of  the  commerce,  and,  in  a  great 
measure,  controlled  the  trade  of  the  country;  and 
when  the  United  States  possess  a  stable  and  substantial 
currency  of  the  precious  metals,  in  connection  with  their 
other  great  commercial  advantages,  they  will  become 
the  commercial  centre,  and  may  control,  in  a  great 
measure,  the  commerce  of  the  world. 

The  national  government  has  already  done  its  part 
to  effect  the  necessary  reform  of  the  currency.  All 
that  remains  to  be  done  is,  that  the  State  governments 
should  follow  the  example,  by  enacting  intelligent  and 
judicious  laws  for  the  purpose  of  introducing  gradually 
the  change  to  a  sounder  condition  of  currency.  Some 
of  the  States  have  already  commenced  it,  but  none 
have  done  less  towards  it  than  the  New  England  States. 
The  first  step  in  this  reform  may  be,  to  require  all 
banks  to  be  organized  under  a  general  banking  law, 
which  would  take  from  them  the  unpopular  stigma  of 
monopolies,  and  would  require  the  notes  used  for  cir- 
culation to  be  obtained  from  State  officers,  and  govern- 
ment stocks  to  be  pledged  for  them,  thereby  giving  to 


108 


!'  I 


I 


the  government  of  the  State  a  proper  security  over 
the  currencv  of  circulation.  -     . 

The  issue  of  all  bank-notes  of  a  smaller  denomination 
than  ten  dollars,  should  be  prohibited.  Gold  and  silver 
would  be  immediately  substituted  for  them  with  great 
advantage  to  the  public,  and  without  inconvenience 
at  this  time,  when  large  quantities  of  gold  are  sent 
abroad,  because  there  is  no  use  made  of  it  at  home. 
Having  gone  thus  far,  if  it  were  found  that  the  benefits 
of  increased  stability  and  uniformity  in  the  currency 
were  obtained,  and  that  there  existed  a  sufficient 
amount  of  money  for  the  proper  conduct  of  the  business 
of  the  community,  and  increased  facility  in  borrowing 
monoy  at  the  legal  rates  of  interest,  and  such  would  cer- 
tainly be  the  result,  it  might  be  well  then  to  consider, 
whether  for  remittances  and  for  payments  of  large  sums, 
checks  and  drafts  could  not  be  substituted  without  in- 
convenience, and  perhaps  with  some  benefit,  for  many 
of  the  purposes  for  which  bank-notes  of  large  denomi- 
nation are  now  used.  And,  in  fact,  whether  any  paper 
money  for  general  circulation,  is  beneficial  to  the  pub- 
lic, or  to  anybody,  except  the  individuals  or  corpora- 
tions that  issue  it.  .  • 

The  effect  of  withdrawing  from  circulation  the  bank- 
notes of  a  denomination  below  ten  dollars,  would  be 
to  produce  a  temporary  reduction  of  the  amount  of 
money  in  circulation.  This  would  cause  a  correspond- 
ing decline  in  the  price  of  merchandise.  Such  a 
decline  of  prices  would  diminish  for  some  time  the 
inducements  to  import  foreign  merchandise,  and  leave 
the  precious  metals  which  are  now  exported  to  pay 
for  them,  to  supply  the  place  of  the  small  notes  with- 
drawn from  circulation.     The  decline  of  prices  being 


109 


a  general  one,  would  tend  to  stimulate  the  domestic 
industry  of  the  country  by  diminishing  the  cost  of 
production ;  and  the  consumption  of  the  products  of 
domestic  industry  would  be  increased  by  the  lower 
prices  at  which  they  could  be  afforded.  There  would 
still  remain  the  annual  .supply  of  imported  necessaries 
and  luxuries,  which  are  paid  for  by  the  exports  of  the 
surplus  products  of  the  country,  —  the  cotton,  tobacco, 
flour,  and  other  articles.  And  the  demand  for  these  and 
other  domestic  products  to  export  would  be  stimulated 
and  increased  by  the  necessity  of  exporting  them  to 
pay  for  the  foreign  imports,  when  the  specie  of  the 
country  could  no  longer  be  used  for  that  purpose. 

A  considerable  proportion  of  the  wealth  of  the 
country,  at  any  given  period,  consists  of  those  com- 
modities which  are  consumed  by  use,  such  as  articles 
of  food  and  clothing,  of  which  by  far  the  greater  part, 
particularly  such  as  are  usually  deemed  necessaries 
of  life,  are  the  products  of  domestic  industry.  While 
those  articles  that  are  less  necessary,  and  which  are 
usually  considered  as  luxuries,  are  imported  from 
abroad.  This  is  particularly  true  with  regard  to  the 
United  States,  where  the  diversity  of  soil  and  climate, 
and  the  active  industry  of  the  people,  supply  most  of 
the  wants  of  the  community.  Low  prices  would  not 
diminish  the  quantity  of  those  common  necessaries  of 
life  which  are  supplied  by  domestic  industry,  but,  on 
the  contrary,  would  tend  to  increase  their  supply  by 
diminishing  the  cost  of  producing  them.  The  low 
prices,  caused  by  the  use  of  the  precious  metals  for 
currency,  would  reduce  only  the  supply  of  imported 
luxuries,  as  the  gold  that  is  now  exported  to  pay  for 
thorn  would  be  required  to  take  the  place  of  the  paper 


110 


money  withdrawn  from  circulation.  That  gold  would 
thereby  become  a  part  of  the  permanent  wealth  of  the 
country.  It  would  be  an  addition  to  the  wealth  of  the 
country  that  would  contribute  to  the  benefit  of  all 
classes  of  the  community,  and,  most  of  all,  to  the  bene- 
fit of  those  who  live  on  wages  and  salaries. 

To  diminish  for  a  few  years  the  supply  of  imported 
luxuries,  is,  in  truth,  the  only  sacrifice  required  to 
secure  to  the  country  a  permanent  and  substantial  cur- 
rency of  real  money,  in  place  of  the  paper  money  that 
is  now  used.  The  benefits  of  it  would  extend  to  the 
whole  public,  whereas  the  paper  money,  which  now 
constitutes  almost  our  whole  currency,  in  the  New 
England  States,  benefits  only  the  comparatively  few 
who  are  connected  with  the  banks  that  supply  it,  and 
operates  as  an  evil  and  an  injury  to  the  community. 

The  currency  of  a  country,  when  it  consists  of  real 
monei/,  operates  as  a  just  and  natural  regulator  and 
controls  the  extent  of  business.  If  the  country  is 
prosperous,  the  currency  expands,  because  the  pros- 
perity, being  the  result  of  the  profitable  employment 
of  the  people,  increases  the  amount  of  money  in  cir- 
culation, and  diffuses  it  among  the  industrious  and  the 
enterprising.  The  prices  of  commodities  and  the  ex- 
tent of  business  are  always  influenced  by  the  amount 
of  money  in  circulation  ;  therefore,  when  the  currency 
consists  of  real  money,  the  increased'  quantity  of  money 
in  circulation,  and  the  rise  of  prices  are  indications  of 
increased  prosperity.  Such  an  increase  of  money  and 
of  ability  to  purchase  are  not  artificial.  They  cause 
prices  to  rise,  and  encourage  and  strengthen  all  branch- 
es of  industry.  If  at  any  time  that  effect  becomes 
excessive,  the  demand  for  specie  to  export,  which  it 


Ill 


produces,  will  gradually  contract  the  currency  by  dimin- 
ishing the  amount  of  it,  and  thereby  gradually  reduce 
prices  and  business  to  just,  natural,  and  proper  limits. 

The  amount  of  paper  money  in  circulation  is  not 
controlled  by  any  general  principles  or  laws.  From 
its  very  nature  it  must,  be  constantly  fluctuating  in 
amount,  and  the  changes  must  be  comparatively  ab- 
rupt and  excessive.  The  increase  of  it  stimulates  busi- 
ness, and  produces  sudden  and  artificial  enhancement 
of  prices ;  but  the  quantity  of  it  is  usually  diminished 
even  more  suddenly  and  unexpectedly  than  it  was  in- 
creased, causing  often  bankruptcy  and  ruin  to  many. 

It  has  been  well  remarked,  that  the  measure  of  in- 
fluence and  of  actual  power  is  not  so  much  to  be 
reckoned  by  that  which  is  seen  and  known  to  be  ex- 
erted, as  by  what  is  supposed  to  be  held  in  reserve. 
So  the  power  of  currency  or  money  should  be,  under 
the  control  of  good  laws,  not  so  much  in  the  common 
and  daily  power  of  usefulness  that  is  exerted,  but  in 
its  actual  reserves  of  power  and  resources  to  meet 
any  emergencies.  No  machine  or  engine  can  always 
be  kept  in  movement  at  the  highest  tension  of  all  its 
faculties  and  powers.  The  unreasonable  strain  would 
break  down  the  most  powerful  combinations  of  mate- 
rials, if  the  exertion  at  all  times  was  fixed  at  the 
highest  possible  capacity  and  speed.  Yet  such  are 
precisely  the  conditions  required  by  the  admirers  and 
advocates  of  our  present  banking  system.  It  is  the 
very  quality  for  which  they  admire  it.  Our  banking 
system  is  perfect,  they  say,  because  under  it  not  one 
single  dollar  of  coin  or  of  credit  can  exist  in  the  com- 
munity that  we  cannot  lay  our  hands  upon  and  bor- 
row at  some   rate   or  other  j   leaving  no  reserves  of 


112 


IH!'! 


currency  for  the  unforeseen  events  or  accidents  of 
foreign  or  domestic  commerce,  —  for  the  possible  effects 
of  short  or  overabundant  harvests,  —  for  the  sudden 
breaking  out  of  war,  or  the  equally  sudden  conclu- 
sion of  peace,  —  for  the  expansions  and  contractions 
of  speculative  business  seasons,  that  must  under  any 
system  occasionally  recur,  —  for  innumerable  contin- 
gencies in  all  parts  of  the  world,  which  may  suddenly 
become  known,  and  seriously  operate  upon  the  money 
and  currency  of  all  commercial  nations. 

The  object  of  these  pages  is  to  protest  against  the 
doctrines  and  conclusions  of  those  who  proclaim  our 
method  of  banking  and  currency  to  be  the  best  in  the 
world,  to  the  end  that  the  evils  and  disadvantages  of 
the  existing  system  may  be  examined  and  remedied. 
Perhaps  in  the  present  interval  between  the  extrava- 
gant speculations  of  past  years,  and  the  projects  of 
future  adventures,  it  may  happen  that  public  atten- 
tion will  be  attracted  to  the  important  questions  that 
have  been  considered,  and  that  grave  discussion  may 
be  excited  in  respect  to  them,  and  some  practical  and 
useful  results  may  be  obtained. 

If  the  writer  of  these  few  and  imperfect  pages  shall 
have  contributed  facts,  arguments,  or  opinions  to  aid 
in  the  establishment  of  a  more  complete  and  rational 
system  of  banking  and  currency,  he  will  have  accom- 
plished his  object.  Such  views  as  have  been  set  forth 
are  not  uncommon  among  our  merchants.  It  is  to  be 
hoped  that  they  may  be  maintained  and  upheld  by 
more  eloquent  and  practised  writers,  though  they  can 
hardly  obtain  the  support  of  any  one  more  sincere- 
ly convinced  of  their  importance  and  truth  than  their 
present  advocate. 


'W' 


yfir"'    \ 


<■: 


..V!' 


